Durable tailwinds persisted through the end of the year, demonstrating resilience despite the sharp 37 bps rise in the 10-year Treasury yield and the strengthening U.S. Dollar, both of which typically weigh on real estate valuations and investment activity. Demand remained robust, fueled by evolving consumer preferences, improving capital market conditions, and a significant contraction in new construction starts across all major asset classes.
The decline in new supply creation has placed upward pressure on occupancy rates and rental pricing power, reinforcing the long-term value of well-positioned assets. Fractal's deep conviction in these structural shifts, combined with a cyclical correction in valuations, positions the firm to capitalize on market dislocation and sectoral dispersion. This divergence has created compelling monetization opportunities, particularly in asset classes and markets where capital constraints and reduced development pipelines have led to supply-demand imbalances.
Pertaining to today's dislocation coinciding with our thematic approach, three elements can be cited as key contributors to the delta between intrinsic and extrinsic value: capital market volatility and pricing inefficiencies, operational performance, and structural supply constraints and demand resilience. The rapid rise in interest rates and shifting risk premiums have disrupted traditional valuation models, leading to temporary price dislocations that do not reflect the underlying fundamental cash flow strength of high-quality assets. While extrinsic market sentiment may price assets at a discount due to macroeconomic uncertainty, intrinsic value remains intact for well-positioned properties with durable income streams, particularly those in supply-constrained markets. Asset-level fundamentals: rising rental income, record-high occupancy, and NOI growth are significantly stronger than what broad-market pricing may suggest. Furthermore, the 58% annual decline in new construction starts across major asset classes has reinforced the pricing power of existing assets. Retail strip centers, in particular, have benefited from limited supply expansion, pushing lease rates higher than projected. This supply-demand imbalance enhances intrinsic asset value, even as broader capital market adjustments temporarily suppress transaction activity.
Our competitive positioning has an innate synergy with today's dispersed background as evidenced by retail outperforming all asset classes in 2024. While office, industrial, and multifamily have faced increasing headwinds whether from structural shifts in remote work, overbuilt industrial supply, or softening rent growth in multifamily retail has demonstrated superior resilience and upside potential. Several key factors highlight retail's dominance relative to other commercial real estate sectors, such as retail rental growth exceeding projecting experiencing 5.1% annualized rent increased compared to flat to negative growth in multifamily, and the softening cap rates in industrial. Retail occupancy rates remained stable, with demand for well-located neighborhood and strip centers sustaining high tenant retention. Investor appetite for retail assets has increased, driven by a scarcity of new supply and high replacement costs, making existing centers more valuable. Retail cap rates compressed while cap rates in industrial and office sectors expanded due to risk repricing. With these factors in mind, 2024 reaffirmed our conviction focusing on resilient, income-generating assets where consumer demand and constrained supply drive long-term growth. While broader commercial real estate segments face headwinds, Fractal RE's positioning within high-growth secondary markets and necessity-based retail allows us to capture superior risk-adjusted returns in the current cycle.