CRE in the Crosscurrents of High Interest Rates and Structural Changes: 1Q 2024 ValTrends Report

Adversity continues to buffet commercial real estate (CRE), including high interest rates, constrained capital availability, conservative underwriting standards, low deal volume and negative returns. But some investors believe CRE is close to bottom and offers opportunity to capture upside, according to the latest ValTrends report, “In the Crosscurrents,” SitusAMC’s quarterly analysis of important trends in the economy, CRE sectors, capital markets and the investment environment. Download our free, 28-page report for 1Q 2024 here. 

The report offers SitusAMC’s proprietary insights into the economy, financial markets, capital markets and property types, leveraging exclusive investor surveys, proprietary research, third-party data and in-depth analysis. Among the highlights:  

Overall CRE performance improved but posted negative returns for the sixth consecutive quarter. The NCREIF Classic NPI overall CRE returns up 200 bps QoQ, but one-year trailing returns were -7.2%, among the worst since the Global Financial Crisis (GFC). Retail returns rose for the first time in year, up 175 bps to 0.6%, per NCREIF’s Classic NPI. Industrial returns jumped 240 bps to 0.1%, the first positive return in six quarters. 

Ratings for capital availability rose for the fourth consecutive quarter. They hit the highest level since 3Q 2022. Still, capital availability remains constrained. Underwriting standards loosened slightly but remain very conservative. 

Investors overwhelmingly favor holding CRE versus buying or selling. Citing a lack of transactions and ongoing uncertainty, 90% of survey respondents recommended a hold position. It was the eleventh consecutive quarter in which Investors preferred to hold; the hold strategy was almost double the level seen during the GFC.  

Comparing CRE to other investment alternatives, preference for stocks increased, reaching a record high. Stocks were, by far, the most preferred asset class. Second-quarter ratings for stocks are expected to remain high. Though experiencing some volatility, the Dow, S&P 500 and Nasdaq all posted gains in May; the Nasdaq and S&P 500 reached record closing highs on June 5. CRE’s rating was the lowest among the asset classes following a significant quarterly decline. Some investors in the survey indicated that CRE was close to bottom and thus offered opportunity for investors to capture upside. 

Get full coverage of CRE markets in 1Q 2024 by downloading the ValTrends Report “In the Crosscurrents” here. 

Our next “ValTrends First Look” webinar takes place on July 23, 2024 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.