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A survey of commercial real estate investors about their current market sentiment is another sign that the sector is moving in the right direction. The Burns + CRE Daily Fear and Greed Index, conducted by CRE Daily and John Burns Real Estate Consulting, surveyed approximately 1,000 investors. Many believe that the current real estate cycle has reached its lowest point. The survey was done before the Fed cut interest rates.
Overall, the study found that 38% feel we have already reached the bottom of the cycle, while another 18% think this will happen before the end of 2024. The Fear and Greed Index is on a scale of one to 100. Anything below 50 indicates fear in the market. The most recent sentiment indicator stood at 53, balancing fear and greed. When the number goes above 55, it is a sign that investors are ready to pounce.
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Commercial real estate investors are not yet ready to change their exposure; 68% plan to stay where they are for now. Across all sectors, 46% of investors expect to increase their commercial real estate exposure in the next six months.
One issue for investors is finding access to capital, although the situation may be improving. Although 37% reported that accessing capital is still more difficult, 8% said it is getting easier. We expect this to improve in the coming months.
Investors believe that values have fallen across all sectors, but the value of the decline tells part of the sector-specific real estate investment story. In the third quarter of last year, investors said multifamily prices fell 17% and now show a drop of just 6%.
Improvement was also observed in retail, where the estimated price drop went from a drop of 10% to a drop of just 2%. Industrial property prices showed fairly stable sentiment, although they fell 3% during the survey period.
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Office real estate continues to be the biggest concern for most investors, with prices falling 20% annually. However, investors are hesitant to say that the worst is over in this sector; 37% say values have bottomed out, while 43% expect further declines in 2025. The sector itself continues to be a study in contrasts.
The flight to quality that has driven the market in recent years is still in play. Class A offices remain strong, but class B offices, especially those over 15 years old, have not yet bottomed out. One investor interviewed said: “The office is still having its e-commerce moment, as was the case with retail in the Great Financial Crisis.”
Although the multifamily sector has recently struggled with oversupply and some reductions in rents, the survey showed that investors anticipate further growth in the sector, driven in part by changes in interest rates. Investors are diving in; 57% intend to increase their exposure in the coming months and only 7% are going in the opposite direction.
A big issue on investors’ minds is insurance costs. About 75% of respondents said they saw an increase of 10% or more in insurance premiums. This could change where some investors allocate capital, avoiding riskier markets like California and Florida. “Hazard/casualty insurance for multifamily has become an outsized item,” said one survey respondent.
Overall, opportunities seem to be everywhere and investors are getting ready. One investor summed up the situation: “Now is the time to buy if you can secure equity. Values will rise as interest rates decrease. Buy now and plan to refinance within three years.”
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This article Fear or Greed? The Fund Is Here, They Say Commercial Real Estate Investors originally appeared on Benzinga.com
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