This is our third installment in the “Anatomy of a CRE Correction” chartbook series. In the first iteration, released in April 2023, we acknowledged the challenges faced by the asset class but offered two reasons it was unlikely the correction would turn into a crisis: Namely, healthy fundamentals and resilient capital markets. We updated our views at the end of 2023, noting the sharp leg of the correction had ended but the market would likely need another year before a true recovery could be considered.
As we write in late 2024, it appears improvement in the CRE market is finally in the offing:
- Measures of CRE property values show price declines have largely abated.
- The outlook for fundamentals in many sectors is as positive as it’s been in three years.
- Investor sentiment has improved amid economic optimism and peaking interest rates.
Of course, risks remain around geopolitics, interest rates, and both fiscal and monetary policy. In addition, much of this chartbook will be focused on the likely shape of a potential recovery—some of which may surprise readers. However, for the first time in two-and-a-half years, optimism is finally piercing the clouds over the U.S. CRE market.