Fear or greed? Commercial real estate investors say ‘we’re at rock bottom’
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The current market sentiment survey of commercial real estate investors is another sign that the sector is moving in the right direction. The Burns + CRE Daily Fear and Greed Index was conducted by CRE Daily and John Burns Real Estate Consulting and surveyed approximately 1,000 investors. Many believe that the current real estate cycle has reached its bottom. The survey was conducted before the Fed cut interest rates.
Overall, the survey found that 38% feel we have already reached the bottom of the economic cycle, and another 18% think it will happen by the end of 2024. The Fear and Greed Index is expressed on a scale from 1 to 100. Anything below 50 indicates fear in the market. The latest sentiment indicator is 53, with a balance of fear and greed. When this number is above 55, it indicates investors are ready to jump on board.
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Commercial real estate investors are not yet ready to change their exposure. 68% plan to stay where they are for now. Across all sectors, 46% of investors expect their exposure to commercial real estate to increase over the next six months.
Although the situation is improving, one of the challenges for investors is finding access to capital. 37% said accessing funds remains difficult, while 8% said accessing funds is becoming easier. It is expected that this situation may improve in the coming months.
Investors believe that values are falling across all sectors, but the extent of the decline tells part of the sector-specific real estate investment story. Multifamily prices fell 17% in the third quarter of last year, but are now down just 6%, investors said.
There was also improvement in retail, with prices expected to fall by just 2% instead of 10%. Industrial real estate prices fell by 3% during the survey period, but remained roughly flat.
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Office real estate remains the top concern for most investors, with prices dropping 20% each year. But investors are hesitant to say the worst is over for the sector. 37% say values have hit rock bottom, and 43% expect them to fall further in 2025. The sector itself remains a study in contrasts.
The flight to quality that has driven the market for the past few years continues. While Class A offices continue to do well, Class B offices, especially those older than 15 years, have not bottomed out yet. “Just like retail did during the Great Financial Crisis, offices are still having an e-commerce moment,” said one investor in the study.
The multifamily industry has struggled recently with oversupply and falling rents in some areas, but the survey showed investors expect further growth in the sector, in part due to changes in interest rates. Investors are actively participating. 57% want to increase their exposure in the coming months, but only 7% are heading in the opposite direction.
A big issue for investors is insurance costs. Approximately 75% of those surveyed said their insurance premiums had increased by 10% or more. That could change where some investors allocate their capital, away from riskier markets like California and Florida. One survey respondent said, “Hazard and property insurance for multifamily properties has become a huge item.”
Overall, opportunities seem to be everywhere, and investors are gearing up. One investor summed up the situation by saying, “If you can secure capital, now is the time to buy. Values will rise as interest rates fall. Buy now and plan to refinance within three years.”
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