The CREFC has reported a significant increase in optimism among its Board of Governors (BOG) with the release of their Third-Quarter 2024 (3Q 2024) Sentiment Index survey. The index rose to an all-time high of 121.1, marking an impressive 18% jump from the previous quarter since its launch in late 2017. This surge is attributed to positive sentiments towards the Federal Reserve’s interest rate cuts, potential for a soft landing for the US economy and their impact on both commercial real estate assets and lending market conditions.
A closer look at the survey conducted just before the Fed’s decision to cut rates by fifty basis points reveals some interesting findings:
Economic Outlook: A notable increase was seen in respondents’ expectations for improved performance over the next year, with a rise from only11% last quarter to now32%. Conversely, only11% anticipate worsening conditions.
Rate Impact: There has been a substantial shift in sentiment towards lower mortgage and capitalization rates positively impacting CRE finance and asset values – up from41% last quarter to now85%.
CRE Fundamentals: Confidence levels have also improved regarding CRE fundamentals as40% predict better conditions overthe next year comparedto24 % previously.
Transaction Activity & Financing Demand: Investor demand for CRE assets is expectedto grow significantlywith81 % anticipating increased demand comparedto54 %lastquarter.Borrower demandfor financinghasalso risenfrom65 %lastquartertonow85%.
Liquidity & CMBS Market:The confidencein liquidity withinthe industryhas alsoincreasedsignificantlywith77%demandingbetter/moreliquidmarketconditionsin debtcapitalmarketscomparedt o46%duringthepreviousquarter.
Optimistic Industry Sentiment:A marked improvement was observedinindustry sentimentas57%said theyhavea positiveoutlookcomparedt oonly22%duringthepreviousquarte r.Negativesentimenthasalsodroppedto2%.
“The latest survey results indicate a strong resurgence of confidence within the CRE finance industry,” said Lisa Pendergast, Executive Director of CREFC. “With expectations for further Federal Reserve easing and increased demand from investors and borrowers, market participants are gearing up for growth opportunities through the end of this year and into 2025. While challenges remain in certain sectors such as office space, overall outlook is more optimistic than previous quarters.”
