Commercial real estate is currently experiencing a volatile phase, and it’s important to understand how investors view the situation. In a recent video from Marcus & Millichap, Senior Vice President and National Director of Research and Advisory Services John Chang discussed investor perceptions.
There are two main types of investors in commercial real estate: institutional and private. Institutional investors are staying on the sidelines as they anticipate further price drops before the market stabilizes. On the other hand, private investors believe that prices have hit bottom or are close enough for deals to make sense.
Another trend is that sellers are starting to accept current pricing standards instead of holding out for premium prices. This shift can be attributed in part to banks tightening their lending practices as they work towards clearing maturing debt off their balance sheets.
While there has been some distress in commercial real estate due to elevated delinquency rates, it is not at levels seen during previous financial crises. According to data from Trep, Cred IQ, and MSCI analyzed by Chang, distressed sales only accounted for 3.9% of total dollar sales volume in Q1 2024.
Chang believes that this distress level is more like a ripple than a wave because much pricing calibration has already taken place in response to market conditions. However,it’s difficultto time exactly when the market will hit bottom; typically this can only be determined after looking back with hindsight.Investors should focus on making informed decisions based on current information rather than tryingto predict future trends.
