Q3 2022 CRE outlook: Mean reversion, or something more?

As a slowing economy looms, our real estate experts outline what they’re watching across each of the key sectors.

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August 9, 2022 | 20 minute read

About this episode

In this quarterly outlook episode, Investment Research Directors Kara O’Halloran and Andrew Korz discuss the potential impacts of a slowing economy on the commercial real estate market. They cover the team’s views on inflation, growth and financing costs, and why investors might consider seeking higher on the capital structure. Plus, Andrew gives us an impressive lightning round of his quick takes on multi-family, industrial, hotel, office and retail sectors.

Download the full outlook, visit: https://fsinvestments.com/fs-insights/q3-2022-commercial-real-estate-outlook/

Transcript excerpt:

[00:00:00] Kara O’Halloran:
Welcome back to FireSide, a podcast from FS Investments. My name is Kara O’Halloran. I’m a Director on the Investment Research team here. On today’s episode, we are going to take a tour of commercial real estate markets, specifically where CRE fundamentals sit now, what rising financing costs could mean for debt versus equity investors, and what a slowing economy means for the asset class.

[00:00:22] Kara O’Halloran:
So to discuss all of this, I am pleased to welcome my colleague, Andrew Korz. Andrew, thanks for being here.

[00:00:27] Andrew Korz:
Yeah. Thanks for having me Kara.

[00:00:28] Kara O’Halloran:
Yeah, sure thing. So last we talked a few months ago, we went through the strong fundamentals that the commercial real estate market had really after a record 2021. But we also discussed some of the headwinds that the asset class faced, mainly in the form of the potential for rising cap rates given the Fed’s tightening cycle and some of the other kind of more macro topics that we discuss a lot on this podcast.

[00:00:50] Kara O’Halloran:
So I wanna today get an update on some of those and then talk about where we may be headed for the next few months. Sound good?

[00:00:57] Andrew Korz:
Sounds good.

[00:00:57] Kara O’Halloran:
All right. Let’s dive in. So CRE has, and rightfully so, a reputation as an inflation hedge, right? Which is particularly attractive given the levels of inflation that we’ve seen this year. Or I should say it historically has been a strong inflation hedge. So now that we’ve had about a year, or a year and a half of these inflationary pressures, we’ve had some time to assess whether that holds true this cycle. Right? So has it?

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Andrew Korz, CFA

Executive Director, Investment Research

Kara O’Halloran, CFA

Director, Investment Research

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