{"id":1004731888,"date":"2024-10-04T04:36:55","date_gmt":"2024-10-04T12:36:55","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004731888"},"modified":"2024-10-09T04:30:31","modified_gmt":"2024-10-09T12:30:31","slug":"cre-sentiment-index-hits-all-time-high","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/cre-sentiment-index-hits-all-time-high\/","title":{"rendered":"CRE Sentiment Index Hits All-Time High"},"content":{"rendered":"\n

Confidence in the commercial real estate sector has improved significantly in the third quarter of 2024, according to the Board of Governors Sentiment Index survey from the CRE Finance Council.<\/p>\n\n\n\n

The index surged to 121.1, an 18 percent increase from 102.4 in the prior quarter<\/a>. This marks the highest index reading since the metric was launched in 2017.<\/p>\n\n\n

\n
\"The<\/a>
The CRE Finance Council\u2019s index reached an all-time high in the third quarter. Chart courtesy of CREFC<\/em><\/figcaption><\/figure><\/div>\n\n\n

The Fed\u2019s easing of interest rates, the possibility of an economic soft landing and the impact on commercial real estate asset values and lending market conditions boosted the results.<\/p>\n\n\n\n

The survey was conducted between Sept. 4 and Sept. 12, just before the Federal Reserve\u2019s decision on Sept. 18 to cut interest rates by 50 basis points. It focused on six topics:<\/p>\n\n\n\n

    \n
  • Economic outlook: Overall sentiment remains guarded. 32 percent of respondents expect improved performance over the next 12 months, up from 11 percent last quarter. Only 11 percent now anticipate worsening conditions.<\/li>\n\n\n\n
  • Rate impact: 85 percent of respondents expect lower mortgage and capitalization rates to impact CRE finance and CRE asset values positively. This reading has doubled since last quarter\u2019s 41 percent.<\/li>\n\n\n\n
  • CRE fundamentals: 40 percent predict better conditions over the next year than 24 percent in the second quarter.<\/li>\n\n\n\n
  • Transaction activity and financing demand: 81 percent anticipate increased demand, up from 54 percent last quarter. Borrower demand for financing leaped by 20 points to 85 percent.<\/li>\n\n\n\n
  • Liquidity and CMBS market: Confidence in liquidity improved significantly, from 46 percent in the previous quarter to 77 percent expecting better\/more liquid market conditions in the debt capital markets. CMBS and CRE CLO demand increased to 66 percent from 43 percent.<\/li>\n\n\n\n
  • Optimistic industry sentiment: This metric more than doubled over the second quarter, moving from 22 percent to 57 percent. Negative sentiment plummeted to 2 percent.<\/li>\n<\/ul>\n\n\n\n

    Experts’ outlook mirrors survey results<\/h2>\n\n\n\n

    BGO Chief Economist Ryan Severino told Commercial Property Executive<\/em> that the positive outlook reported in the CREFC survey aligns with BGO\u2019s outlook.<\/p>\n\n\n\n

    \u201cAt this point, it would take something highly idiosyncratic to derail our positive outlook for CRE capital markets,\u201d Severino said.<\/p>\n\n\n\n

    \u201cCRE returns have swung back into positive territory after the Fed stopped raising rates last year, holding to form. With no permanent change in the CRE economy, there is no reason to expect that the lower rates would not continue to boost the CRE market\u2014liquidity, transaction volume, valuations, appreciation returns and total returns should all improve as the monetary policy environment shifts,\u201d Severino commented.<\/p>\n\n\n\n

    He also stressed that It\u2019s important to remember this is not a panacea to the entirety of the market, especially struggling mortgages that are backing poor-quality collateral. \u201cRate cuts have already spurred the market, and further loosening should continue to do so, but they will not save every deal,\u201d he added.<\/p>\n\n\n\n

    Jim Costello, chief economist at MSCI Real Assets, told CPE<\/em> that investors who had been anticipating as many as five rate cuts in 2024 have been sorely disappointed. This disappointment has weighed on investor expectations for commercial property.<\/p>\n\n\n\n

    \u201cThe Fed began its rate-cutting cycle in September, while the timing and number of subsequent cuts remain to be seen. What does appear clear is that barring an unforeseen shock, the era of free money that has existed since 2009 is over.\u201d<\/p>\n\n\n\n

    According to Costello, this is proving to be a tough adjustment, considering the long run for cheap capital. \u201cWe have a whole generation of people who weren\u2019t in the market before 2009, and their expectations were formed in an environment where central banks around the world were injecting liquidity into the system,\u201d he observed.<\/p>\n\n\n\n

    Costello also said that without question, that higher costs are making it more difficult to assess market value and negotiate deals.<\/p>\n\n\n\n

    \u201cOn a positive note, the sharp drop in transaction volume last year shows some signs of stabilizing,\u201d he added.<\/p>\n\n\n\n

    According to MSCI Real Assets, the slide in deal volume and pricing that started in 2022 ended in the second quarter of 2024, with a minor 2 percent dip in year-over-year volume.<\/p>\n\n\n\n

    Just wait \u2018til the next Fed rate cut<\/h2>\n\n\n\n

    Lauro Ferroni, head of capital markets research for the Americas at JLL, said that the Fed\u2019s first rate cut in September is expected to solidify the market’s year-to-date improvements further.<\/p>\n\n\n\n

    \u201cThis should lead to a more normalization in the transactions market by catalyzing more deal activity and leading to a further increase in the number of lenders actively quoting on CRE loans across property sectors,\u201d Ferroni mentioned.<\/p>\n\n\n\n

    Crexi COO Eli Randel noted that, as evidenced by the CREFC survey and underscored by increased buyer activity across asset classes on Crexi\u2019s platform, commercial real estate optimism among participants is generally up.<\/p>\n\n\n\n

    \u201cMany believe a market bottom was reached in \u201924 and that \u201925 will bring increased values, higher transactional velocity, more accessible debt, and ultimately the beginning of a new cycle,\u201d Randel said.<\/p>\n\n\n\n

    \u201cThe Fed\u2019s recent, more aggressive rate cuts are expected to unlock transaction activity by encouraging those waiting for more favorable conditions to re-enter the market, he added. “While some challenges remain, the industry is cautiously optimistic about entering a new growth phase, which will be driven by new technology to enhance due diligence, connect disparate parties, and promote healthy deal flow.\u201d<\/p>\n\n\n\n

    Many CRE loans coming due<\/h2>\n\n\n\n

    Ed Del Beccaro, executive vice president & San Francisco Bay Area manager of TRI Commercial\/CORFAC International, said the lower interest rates would help the real estate market but questions by how much.<\/p>\n\n\n\n

    \u201cMany CRE loans with five-year and 10-year terms coming due in 2025 were taken on at much lower interest rates offered today,\u201d Del Beccaro noted.<\/p>\n\n\n\n

    \u201cBanks will require those real estate entities to inject capital with lower loan-to-value ratios to refinance. Many CRE owners, rather than do that, will give back the keys in 2025, as has been the case in 2024. For this reason, the Federal Reserve is asking banks to increase reserves, which again limits real estate lending.\u201d<\/p>\n\n\n\n

    He added this will be especially true in the office sector, with many markets still experiencing negative absorption and low velocity of leasing transactions.<\/p>\n\n\n\n

    \u201cThere are hope signs of reaching the bottom but not for a couple more years,\u201d according to Del Beccaro.<\/p>\n\n\n\n

    He also noted that employment is slowing nationally, which is causing concerns. Shipping costs have increased because of the dockworkers’ strike and the shutdown of the Red Sea shipping routes, causing supply chain issues.<\/p>\n\n\n\n

    According to Beccaro, remote work trends still impact the market even if in-person office attendance is slowly increasing.<\/p>\n\n\n\n

    \u201cAnnual inflation is coming down but not far enough, with construction costs still too high to start construction in the commercial sector unless preleased. Medical is the exception and a bright spot,\u201d Del Beccaro continued.<\/p>\n\n\n\n

    Major retailers such as Home Depot and others who increased their warehouse footprint during COVID now have significant excess warehouse capacity and are shutting down some warehouses, he pointed out.<\/p>\n\n\n\n

    \u201cThe good news is that unless the world economy is hit hard by possible wars, many economists do not forecast a recession for next year,\u201d he concluded.<\/p>\n\n\n\n

    <\/p>\n","protected":false},"excerpt":{"rendered":"

    The Fed’s easing of interest rates and the likelihood of an economic soft landing are key drivers behind this optimism, according to CREFC’s latest survey. <\/p>\n","protected":false},"author":3568,"featured_media":1004731965,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21808,21748,21783,23891,21742,21747,51037],"tags":[49138,51896],"class_list":["post-1004731888","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-featured","category-industrial","category-investment","category-national","category-latest","category-office","category-trends","tag-cre-finance-council","tag-crefc"],"acf":[],"yoast_head":"\nCRE Sentiment Index Hits All-Time High - Commercial Property Executive<\/title>\n<meta name=\"description\" content=\"CREFC's third quarter of 2024 commercial real estate sentiment index reveals growing optimism amid economic shifts.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/cre-sentiment-index-hits-all-time-high\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"CRE Sentiment Index Hits All-Time High\" \/>\n<meta property=\"og:description\" content=\"CREFC's third quarter of 2024 commercial real estate sentiment index reveals growing optimism amid economic shifts.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/cre-sentiment-index-hits-all-time-high\/\" \/>\n<meta property=\"og:site_name\" content=\"Commercial Property Executive\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/CPExecutive\" \/>\n<meta property=\"article:published_time\" content=\"2024-10-04T12:36:55+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2024-10-09T12:30:31+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2024\/10\/Board-of-Governors-Sentiment-Index-featured-1.png\" \/>\n\t<meta property=\"og:image:width\" content=\"800\" \/>\n\t<meta property=\"og:image:height\" content=\"620\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/png\" \/>\n<meta name=\"author\" content=\"Richard Berger\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@cpexecutive\" \/>\n<meta name=\"twitter:site\" content=\"@cpexecutive\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/cre-sentiment-index-hits-all-time-high\/\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/cre-sentiment-index-hits-all-time-high\/\",\"name\":\"CRE Sentiment Index Hits All-Time High - Commercial Property Executive\",\"isPartOf\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/cre-sentiment-index-hits-all-time-high\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/cre-sentiment-index-hits-all-time-high\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2024\/10\/Board-of-Governors-Sentiment-Index-featured-1.png\",\"datePublished\":\"2024-10-04T12:36:55+00:00\",\"dateModified\":\"2024-10-09T12:30:31+00:00\",\"author\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/#\/schema\/person\/6d4c5f1b2f682b3604ad9fe73c19fed7\"},\"description\":\"CREFC's third quarter of 2024 commercial real estate sentiment index reveals growing optimism amid economic shifts.\",\"breadcrumb\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/cre-sentiment-index-hits-all-time-high\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.commercialsearch.com\/news\/cre-sentiment-index-hits-all-time-high\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/cre-sentiment-index-hits-all-time-high\/#primaryimage\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2024\/10\/Board-of-Governors-Sentiment-Index-featured-1.png\",\"contentUrl\":\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2024\/10\/Board-of-Governors-Sentiment-Index-featured-1.png\",\"width\":800,\"height\":620,\"caption\":\"The CRE Finance Council\u2019s index reached an all-time high in the third quarter. 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