SitusAMC Finds CRE Market Remains Attractive Despite Interest Rate Challenges
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SitusAMC, Houston, found signs that commercial real estate currents are beginning to shift despite stubbornly high interest rates and rapidly changing economic policies.
In its latest quarterly ValTrends research report, SitusAMC says cap rate expansion is leveling off, transaction volume shows nascent signs of activity and CRE originations are heating up.
“The CRE market is moving slowly, but there are also signs of momentum building under the surface,” SitusAMC Insights Vice President Jen Rasmussen said. “Our analysis shows that dry powder is greatly elevated relative to deal activity. Investors are sitting on cash, waiting for opportunities to place it.”
Key takeaways from the report include:
Hesitancy to Transact, But Cap Rates Stable
• Last quarter, CRE investors started hitting pause as economic and policy uncertainty soared. SitusAMC said this trend will likely intensify as investors become more likely to recommend holding CRE and less likely to recommend buying or selling.
• SitusAMC proprietary investment criteria data generally show stability of cap rates across 10 of the 16 property types they cover. “A slight cap rate compression was seen for data centers, industrial R&D, regional malls and student housing,” the report said.
Favorable Capital Market Sentiment for CRE, Greater Capital Availability
• Capital Market Trends: SitusAMC found investors continue to show heightened interest in CRE due to its safe haven qualities. “Understandably, investors have become keener on stocks as equities have soared over the past quarter, but the preference for bonds and cash has waned,” the report said.
• Availability and Discipline of Capital: The CRE capital markets remain competitive, even with persistently high interest rates. “Investors are reporting increasing capital availability and looser underwriting standards amid limited deal volume. The increase in capital availability was more pronounced for equity capital, while the decline in underwriting discipline was more prominent for debt capital. Investors are sitting on cash but have few places to put it,” SitusAMC said.
• Lending Market Led by Alternative lenders: Alternative lenders are the biggest players in the market and are becoming increasingly active as banks and life companies pull back amid regulatory constraints, the report said.
