Understanding the current state of commercial real estate is crucial in today’s volatile market. In a recent video by Marcus & Millichap, Senior Vice President and National Director of Research and Advisory Services John Chang shared his expert insights on investor perceptions.
There are two distinct approaches to buying and selling CRE assets – institutional versus private investors. While institutions remain cautious, believing that prices will continue to decline before stabilizing, private investors see potential for deals as they believe the market has bottomed out or is close enough for profitable transactions. This has led larger private investors to act quickly before institutions re-enter the market.
Another notable trend is that sellers are finally coming to terms with current pricing standards. They are now more willing to price their assets competitively rather than holding out for premium prices as banks tighten up on extending maturing loans due to regulatory pressures.
While there may be some distress in the market, it is not at severe levels compared to past financial crises according 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 according MSCI data.
Chang suggests that this distress level can be seen more as a ripple than a wave with significant adjustments already made in commercial real estate pricing across various asset types and locations. However, predicting when exactly we have reached rock bottom remains difficult but looking back after-the-fact provides valuable hindsight information too late for action.
