Survey shows slight dip in CRE market confidence

Economic uncertainty and high interest rates influence reduced optimism

Survey shows slight dip in CRE market confidence

The CRE Finance Council (CREFC) has published the results of its sentiment index survey for the first quarter of 2024, which recorded a slight dip in market confidence compared to the previous quarter.

The survey, which was conducted from April 4 to 15, saw the index drop 4% to 105.4 from 109.9 in the last quarter.

This would suggest a shift in economic expectations, according to CREFC, influenced by prolonged high interest rates and subdued borrower demand for financing.

CREFC initiated its sentiment index survey in 2017 as a way to gauge quarter-to-quarter shifts in market conditions and outlook. It collects responses from the over 60 senior executives that are part of its board of governors.  

According to the Q1 2024 survey, 61% of respondents expect the US economy to perform similarly to the previous year, up from 31% in Q4 2023.

Conversely, only 24% were optimistic about an improved economic performance, indicating a steep fall from 54%.

Views on interest rates varied, with 31% predicting a positive impact from mortgage and capitalization rates, while 37% anticipate negative repercussions—a change from last quarter’s more optimistic 48%.

The outlook on commercial real estate fundamentals was slightly more hopeful, with 24% expecting improvements over the next year, up from 15%.

Expectations for financing demand have also cooled, as 69% of respondents said they foresee an increase in borrower demand, down from 88%.

Still, overall industry sentiment was stable, with 84% of responses being positive or neutral, slightly up from 81% in the prior quarter.

Views on rate cuts and other key issues

The survey also delved into specific concerns, including the Federal Reserve’s interest rate policies. Only a small portion (12%) of respondents predicted no rate cuts in 2024, with a majority (80%) expecting one to two cuts for the year.

Other issues such as the impact of AI on office demand and the influence of upcoming elections and regulatory changes on the market were also highlighted in the survey. 

Commenting on the findings, CREFC executive director Lisa Pendergast said the board of governors displayed “a more tempered outlook amid continued economic uncertainty.”

Still, she said this more cautious outlook is balanced by “strategic adjustments” that are being made across the industry.

“We are navigating these uncertain times with a focus on adapting to market realities and today’s regulatory environment,” Pendergast added.

Have something to say about this story? Feel free to comment below.