LightBox Finds Slow Improvement in CRE Activity
(Illustration courtesy of LightBox)
The commercial real estate sector is adjusting to the fact that the Federal Reserve may lower interest rates only once this year–or possibly, not at all–according to LightBox, New York.
“With every passing month, we’re seeing evidence that intrepid CRE professionals are wading into the waters of dealmaking,” LightBox Head of Data Strategy Manus Clancy said in the firm’s CRE Activity Index. “While the market is still below the early 2021 Index baseline, these recent signs are encouraging as the industry readies itself for the transfer of assets that typically happens after an economic downturn.”
The report said June was the fourth month of modest improvement in CRE activity. The index, an aggregation of daily transactions over the LightBox network, measures changes in the velocity of listings, valuations and environmental due diligence.
June’s aggregate index increased to 93.9 from May’s 87.2 and well above December’s three-year low-water mark of 48.2. (The index is normalized to account for differences in the number of business days in any given month.)
“Both the index and anecdotal evidence support the notion that even with interest rate cuts effectively on hold pending more definitive inflation data, the CRE market is moving forward slowly and cautiously,” LightBox said. “In many respects, the impression driven by the dire news headlines doesn’t match the current situation. For one, the wall of loan maturities has not translated into massive defaults thus far. The expected divestiture of loans by banks is underway with new buyers willing to step up to acquire loans in spite of the headline risk.”
Some assets have started to change hands in the office and multifamily sectors, a trend that could result in a significant transfer of ownership in large metros such as New York City, Chicago and San Francisco. “Portfolios of loans and properties are changing hands as banks and investment funds attempt to limit their exposure to CRE risk and increase liquidity,” the report said. It noted some active developers are starting to repurpose struggling properties like Class B and C office or outdated shopping centers into new, more desirable uses including open-air retail or live-work-play developments.
“If past downturns are any indication, market participants will soon sense that prices are approaching bottom and the time to shop around for deals has arrived, even in the absence of interest rate cuts,” LightBox said.
