Bullish Sentiment Toward CRE Surges: 3Q 2024 ValTrends Report

Positive sentiment toward commercial real estate (CRE) surged in the third quarter among investors, as overall capital availability improved and income returns hit the highest level since 2015. That’s according to the latest ValTrends report, “Great Awakening,” SitusAMC’s quarterly analysis of key trends in the economy, CRE sectors, capital markets and the investment environment. Download our free report for 3Q 2024 here.

“While investor sentiment points to increased activity, it has yet to materialize into actual transactions,” said Peter Muoio, PhD, Senior Director of SitusAMC Insights. “We expect activity to accelerate sometime in 2025, when there is more assurance that capital markets volatility and price decline risk are subsiding.” 

Signs of a market thaw were also evident in investor buy, sell or hold recommendations. The cohort of investors recommending “hold” dropped to 67% from 83% quarter over quarter, the lowest since 2Q 2022. Meanwhile, the recommendation to buy increased five percentage points to 22%, the highest in more than two years.  

Though capital remains constrained by historical standards, investor ratings for overall availability improved, with both debt and equity capital availability reaching the highest levels since mid-2022. “Survey respondents say that there is new money from institutional sources of capital as value declines seem to find floors,” said Jen Rasmussen, PhD, Vice President of SitusAMC Insights.  

In addition, CRE returns may be hitting an inflection point, the report notes. Returns for overall CRE rose in the third quarter and were in the black for the first time in nearly two years.  

Interest rate relief is the key factor driving investor optimism, though the impact of rate cuts by the Federal Reserve has been mixed. Despite a 50 bps interest rate reduction in September, the 10-year Treasury rate rose steadily through early November. Following the presidential election and the 25 bps interest rate cut from the Fed, the 10-year Treasury rate reached 4.42% on November 6, with the market expecting higher inflation from tax cuts and more tariffs. However, yields have been declining since November 21 and are expected to drop further as the market expects an additional rate cut in 2024. 

Explore full coverage of CRE markets in 3Q 2024 by downloading the ValTrends Report “Great Awakening” here. Our next “ValTrends First Look” webinar takes place on January 21, 2025 at 2pm ET, offering a forward-looking snapshot of the quarter ahead. Register here to attend. Learn more about SitusAMC Insights’ research, analytical tools or RERC data products on our website.