CRE Signs to Watch in 2023

You need to know where to duck and move when situations change, possibly quickly.

Knowing when and where to pivot is critical in 2023 as unpredictability and market rebalancing is to be expected.

According to a new Hines study, each cycle has its own peculiarities, so investors, owners, and operators shouldn’t totally rely on what happened in the past.
The firm wrote: “Recognizing what is different and what may at least rhyme with previous cycles can provide insight into how to navigate what is both challenging, with regard to existing holdings, and opportunistic, with regard to the potential to deploy capital in a more sober and attractive pricing environment.”

The “shortage of broader seller capitulation thus far,” which has also referred to as a lack of current price discovery, and the rising pricing pressure of financing (if it is even available at all) are two elements at play. Defensively maintaining capital and hunting for possibilities will differ by global area.
Although the industrial and multifamily markets’ bidding pools are narrower than they were at the beginning of 2022, they are still healthy. “Commodity Class A office is fairly illiquid at the end of the year” in the United States.

According to Hines, there are two main signs to pay attention to. The change volume of transactions usually always comes first. “We can observe the historical association between volume and price rise with a longer time series of transaction volume in the U.S. spanning numerous cycles,” they stated. Unfortunately, the link occurs at the same time rather than before, but the stabilization of transaction volume and ensuing increase during previous cycles has been a solid sign that prices hit a bottom and should start to rise if volume continues to return, says the author.

According to information obtained by from a number of sources, there is already an expectation that transaction volumes may start to change shortly because there is a lot of capital sitting on the sidelines ready for deployment. However, just like markets, that will probably differ greatly by region. Focusing on regional transaction numbers is more likely to indicate whether certain markets are likely to present an opportunity than sticking with keeping an eye on national transaction volumes.

The second indicator is an increase in traditional debt availability. According to the Federal Reserve’s Loan Officer Survey conducted in the third quarter, “57.6% of respondents reported tighter underwriting standards for commercial real estate loans, including loans for construction and land development; 52.9% for non-farm, non-residential loans; and 39.7% for multifamily properties.” When banks reported lowering their requirements in the second half of 2021, all three categories registered a significant increase from a year ago.

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