Commercial real estate outlook

Q4 2023 Commercial real estate outlook: Push and pull

Countervailing forces continue to define today’s CRE market, with the push of higher interest rates opposed by the pull of impressively resilient fundamentals.

Download the outlook
October 12, 2023

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.

  • MSCI Real Capital Analytics, as of August 31, 2023.

  • Preqin, as of September 1, 2023.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

All investing is subject to risk, including the possible loss of the money you invest.

Andrew Korz, CFA

Executive Director, Investment Research

Christopher Bole

Financial Writer, Fund Communications

Search our site