CREFC's 3Q 2024 Sentiment Index Reveals Growing Optimism Amid Economic Shifts

NEW YORK, Sept. 30, 2024 /PRNewswire/ -- The CRE Finance Council (CREFC), the industry association representing the $5.9 trillion commercial and multifamily real estate finance sector, today released the results of its Third-Quarter 2024 (3Q 2024) Board of Governors (BOG) Sentiment Index survey. Conducted between September 4 and September 12, 2024, this survey provides crucial insights into the state of the commercial real estate finance sector, a role it has served since its inception in 4Q 2017.

The 3Q 2024 Index surged to 121.1, an 18% increase from 102.4 in the prior quarter. This marks the highest reading since the index was launched.  It reflects significant optimism over the Fed's easing of interest rates, the potential for a U.S. economic soft landing, and the impact on both commercial real estate assets and lending market conditions.

3Q 2024 Survey Key Highlights:

The survey's core questions reveal a more positive outlook for lending and CRE fundamentals:

• Economic Outlook: Optimism surrounding the U.S. economy rose, but overall sentiment remains guarded. Some 32% of respondents expect improved performance over the next 12 months, up from 11% last quarter. Only 11% now anticipate worsening conditions.
  
  
• Rate Impact: An overwhelming 85% of respondents expect lower mortgage and capitalization rates to positively impact CRE finance and CRE asset values, a substantial increase from 41% last quarter.
  
  
• CRE Fundamentals: Confidence in CRE fundamentals improved, with 40% predicting better conditions over the next year, up from 24% in the previous quarter.
  
  
• Transaction Activity and Financing Demand: Investor demand for CRE assets is expected to grow, with 81% anticipating increased demand, up from 54% last quarter. Borrower demand for financing also saw an uptick, with 85% projecting higher loan demand compared to 65% last quarter.
  
  
• Liquidity and CMBS Market: Confidence in liquidity improved significantly, with 77% expecting better/more liquid market conditions in the debt capital markets, up from 46% in the prior quarter. In addition, positive sentiment around CMBS and CRE CLO demand increased to 66% from 43%.
  
  
• Optimistic Industry Sentiment: Industry sentiment was markedly more positive, with 57% expressing a positive outlook, up from 22% in the previous quarter, with negative sentiment dropping to just 2%.

Additional Topical Insights

The survey also explored expectations regarding Federal Reserve actions and the potential impact on the CRE market. With the survey conducted just before the Federal Reserve's decision on September 18, 2024, to cut interest rates by a half-point, 47% of respondents anticipated a
50 basis point cut in interest rates by year-end 2024, with 15% expecting a rate reduction of 75 basis points during the same period. Most respondents (60%) expect a meaningful recovery in CRE transaction volumes in 2025 as interest rates stabilize. However, concerns persist around the office sector, with 62% expecting continued declines in office property values, particularly for older, less-amenitized buildings.

Lisa Pendergast, Executive Director of CREFC, commented:

"The latest survey results signal a strong resurgence of confidence within the CRE finance industry. Expectations of further Federal Reserve easing, combined with increased investor and borrower demand, suggest market participants are preparing for growth and opportunity through year-end and into 2025. While challenges remain —particularly in the office sector — the overall outlook is more optimistic than in previous quarters."

Leland F. Bunch, III, CREFC's Chair-Elect and Managing Director and Head of Capital Markets and Banking for the US RESF group at Bank of America, said:

"Expectations of easier U.S. central bank monetary policy have improved sentiment in the commercial real estate finance market and any additional interest rate cuts by the Federal Reserve likely will support transaction volume. The lower borrowing costs are welcome after a protracted period of elevated interest rates."

For further details on the CREFC 3Q 2024 BOG Sentiment Index and the full report, click here.

About CREFC and the Board of Governors Sentiment Index

The CRE Finance Council (CREFC) is the trade association for the commercial real estate finance industry. More than 400 companies and 19,000 individuals are members of CREFC. CREFC's members play a critical role in the U.S. economy by financing office buildings, industrial properties, multifamily housing, retail facilities, hotels, and other types of commercial and multifamily real estate.

Over 50 senior executives in the commercial real estate finance markets represent CREFC's Board of Governors. These leaders come from every sector of the commercial real estate lending and mortgage-related debt investing markets, including balance sheet and securitized lenders, loan and bond investors, mortgage bankers, private equity firms, loan servicers, rating agencies, attorneys, accountants, and others.

CREFC's BOG Sentiment Index aims to gauge quarter-to-quarter shifts in market conditions for the CRE finance market. The survey, first administered in 2017, consists of nine core questions and additional topical questions. Responses to the core questions are equally weighted and summed to create a single index value.

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SOURCE CRE Finance Council