The current state of commercial real estate capital markets is experiencing a period of volatility. Recent reports from CBRE and Newmark show little change in fluctuations during the second quarter, but there are some signs that things may be stabilizing.
Transaction volume saw a decline overall in Q2, according to both CBRE’s Capital Markets & Lending and Newmark’s State of the U.S. Capital Markets reports. CBRE noted that investment volume increased by 14% compared to the previous quarter, reaching $86 billion but still down 3% from last year. Meanwhile, Newmark reported a slight decrease of 1% for multifamily investments since Q4 2022 and a significant drop of 35% for hospitality sales.
Despite these declines, multifamily remained at the forefront with $38 billion in investment (according to CBRE). Industrial investments also saw an approximate decline of18%, while office transactions were up by4%, according to Newmark (although CBRE reported a larger year-over-year decrease at21.3%).
In terms of debt markets, both reports agreed that banks have been hesitant in their origination activity during Q2 while alternative lenders have stepped up as leaders instead.Newmark suggested that although overall debt originations were constrained during this time frame due to regional banks facing deleveraging challenges within CRE market conditions,the industry may see signs indicating it has reached its bottom point.CBRE addedthat alternative lenders helda33 %market shareinQ2anddebt funds experienced an increaseof71 %inoriginationvolumeyear-over-year.
Additionally,CBRe mentionedanincreaseincmbsissuanceswhileNewmarkechoedthis sentimentby notingthe Life Companies’ role as well.CBRe statedthatLifeCos accountedfor30 %ofclosednon-agencyloansduringQ27(acomparedtoayearoveryearincreaseof27%)whileNewmarkestimatedtheyincreasedtheirissuancesby10 %inthe firsthalf of2024.
The bond market also saw some changes during this time period, with Newmark noting that lower corporate bond yields (due to a decrease in inflation and labor markets) have improved mortgage bond spreads. However, they also mentioned that cap rates may not be as attractive compared to the cost of debt capital for both private and public markets, except for office REITs.
Meanwhile,CBRe notedthatbenchmarkTreasuryyieldscontinuedtofallamidsignsofa cooling U.S. economy and labor market.Newmark addedthattheyanticipatethatan equilibrium federal funds rateof3.0% or higherwouldanchorlong-termTreasuryyieldsinthemid-3% rangeevenaftertheFedhasnormalizeditspolicystance.Thispredictedratecouldpotentiallybeachievedas early as 2024and wouldhavean impacton overallmarketconditionsforcommercialrealestatecapitalmarketsmovingforward.Despite the sluggishness seen in Q2,the future holds potential bright spots for investors if these trends continue.
