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CRE Execs Say Current Pricing is Fair, Plan to Deploy Capital

CRE professionals across the largest property sectors largely believe current pricing is fair, according to Altus Group's CRE industry and conditions sentiment survey for the third quarter.

More than 80% described the hospitality sector as fairly priced and more than 70% said the retail sector is fairly priced, while about half of respondents said multifamily and industrial are priced about right. Single-family residential, land/development and office all were described as overpriced, according to the survey.

The survey, which was conducted before the Fed's recent interest rate cut, provides insights into the market sentiment, conditions, metrics and issues affecting the commercial real estate industry.

CRE professionals increasingly expect deploying capital to be their primary focus over the next six months. The percentage who said they plan to take this approach grew 11 percentage points from 20% in Q2 to 31% in Q3, while the number of practitioners who cited being on pause or de-risking their portfolio dropped. Of the respondents, 44% said managing their existing portfolio and exposures would be their primary focus.

And 43% of respondents expect a recession to be somewhat likely over the next six months, up from 35% in Q2 but down from the 55% who said the same in Q4 2023. A majority of respondents anticipate that the next recession will be shallow and short-lived, a seven percentage point increase from Q2 and only one percentage point less than the Q1 2024 survey.

Respondents were less confident than in prior surveys, but still anticipate that CRE credit distress will increase, along with attractive investment opportunities and investor return expectations. Bucking the declining confidence trend, respondents were increasingly convinced that there would be increased transaction activity over the next 12 months.

The industrial sector's perception as the best performer slipped somewhat from the previous quarter, while multifamily sentiment rebounded. Consumer-facing sectors including retail and hospitality drew concern about performance, while office remains the worst performer.

Cost of capital remained the top concern of respondents for the fourth consecutive quarter, with 60% of respondents citing it as a priority, the only issue identified by a majority during Q3. Capital availability was also a significant concern, ranking third at 47%, and showing a 6% increase quarter-over-quarter.

Reprinted with permission from the Friday, 27 September 2024 05:37:01 EST online edition of GlobeSt © 2024 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or reprints@alm.com.