Countervailing forces continue to define today’s CRE market, with the push of higher interest rates opposed by the pull of impressively resilient fundamentals. While there are plenty of reasons for caution, the market has thus far defied the bleak prognoses that have loomed over the space for much of the past year. The CRE market is challenged but steady, and we continue to see attractive investment opportunities amid this unique backdrop.
Key takeaways
- The CRE market has been stuck in neutral, with sales activity and pricing roughly flat since midyear. Markets have yet to find an equilibrium between buyers and sellers.
- Outside the office sector, fundamentals continue to look remarkably stable.
- A drawn-out tussle between fundamentals and interest rates favors lenders over owners.
Undoubtedly, 2023 has been a weak year for the CRE market overall. Higher interest rates have been draped over the market like a wet blanket, sapping investment activity and pushing property prices lower. Transaction volumes through August have totaled just $234 billion, 58% lower than last year and 33% short of 2019’s total through eight months.1 Fundraising has slowed, with the $70 billion raised into institutional real estate funds down -17% compared to last year.2 National property values have declined -5% YTD as values are set to fall in two consecutive years for the first time since 2008–2010. Rent growth in most sectors has moderated from the scalding pace of the previous two years with inflation gradually tempering.1
And yet, our sense is that these challenging outcomes do not match the magnitude of negative sentiment that was carried into the year.
Read the complete Q4 2023 commercial real estate outlook to learn more.
