New commercial real estate industry survey reveals predictions
A newly released study on the state of the CRE industry and attendant outlooks from professionals doesn’t bury the lead: A shallow recession is expected in the next six months amid worries of elusive financing and shrinking capital sources.
The survey gauged expectations from some 200 industry experts across the US. CRE professionals also were prompted to respond to the growing emergence of AI and other matters affecting their work. Respondents covered the breadth of the CRE industry, including brokers, portfolio managers, lender and service providers.
The Altus Group survey – titled Q4 CRE Industry Conditions & Sentiment Survey, is just the second iteration of a quarterly poll among industry professionals. Mortgage Professional America reached out to Omar Eltorai (pictured left), director of research at Altus Group, for more commentary on the findings.
Most in the industry expecting a “shallow” recession
MPA began by gauging his reaction to the high level of professionals positing a recession as something of a foregone conclusion. According to the survey’s findings, more than 77% of respondents indicated they are expecting a shallow recession to emerge six months into 2024.
“One of the first surprises I had was with the recession expectations because I think broad markets are really pricing in some sort of soft-landing narrative, and, I think as a lot of the outlooks from asset managers and banks are being put out for the next year and beyond, these results really show at least the CRE industry is very much in the recession camp,” Eltorai said during a telephone interview. “That was probably one of the first datapoints I was a little bit surprised by.”
Eltorai has a feel for the industry that transcends his research and analysis role at Altus Group, having spent nearly six years managing real estate portfolios at BlackRock. “There is this understanding that it’s too soon to say ‘mission accomplished’ or ‘we’ve made it to the other side’,” he said.
Feelings on AI, capital and financing registered
Among the study’s other key findings:
- AI is not a widespread concern. More than 72% of respondents said artificial intelligence will benefit CRE professionals in the industry.
- Financing is still a high priority issue with 72% of respondents identifying it as top of mind – slightly down from the 78% expressing the sentiment in the previous quarter. Particular concern was registered among those in the office sector, which is still expected to be the worst-performing sector in the next 12 months.
- Concern over the access to capital continues, little changed from Q3. Respondents expect interest rates to rise, according to the findings, making capital less available.
Reaching out to a real estate investment veteran for additional insight
MPA reached out to Greg Friedman (pictured right), managing principal/CEO of the Peachtree Group, for his take on the survey’s findings. The Atlanta-based real estate investment firm has transacted more than 600 deals valued at more than $9 billion.
Friedman stopped short of calling the expected economic downturn a recession, and he suggested a financial crisis would not be grave in nature: “While I don’t anticipate a severe crisis, I do foresee an economic slowdown that may present challenges in 2024, particularly for those seeking capital,” he said. “If there is a recession, I agree with the majority that it will be short lived.”
Friedman also shared respondents’ concerns on the “capital conundrum” detailed in the Altus Group study: “In 2024, the spotlight will be on the scarcity of capital, a critical issue that will reverberate across the financial landscape,” he said. “Lack of capital availability intensifies the strain on property balance sheets. Approximately $0.5 trillion worth of commercial real estate loans reaching maturity, coupled with the unlikelihood of traditional lenders and the securitization market offering a viable solution for replacing these loans, set the stage for further erosion in property valuations.”
The upshot: “This impending scenario suggests a challenging road ahead for the commercial real estate sector,” Friedman said.
He offered a nuanced response to the emergence of AI across the landscape. “AI presents both opportunities and challenges; its potential is vast,” he said. “While AI obviously offers numerous benefits, such as increased efficiency, innovation and problem-solving capabilities, there are concerns regarding job displacement, ethical considerations, data privacy and potential biases.”
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