Why Investors Still Have Reason to Be Optimistic in CRE

Although uncertainty is running rampant in the commercial real estate market, Dianne Crocker of LightBox says that there are still plenty of reasons for investors to be optimistic. Crocker notes that the strength of the market leading into the pandemic as well as the ample capital chasing deals all bode well for the future of the market.

“Notwithstanding the fact that true market recovery won’t happen until the health crisis ends, there are several factors that bode well for the commercial real estate sector right now,” Crocker, the principal analyst for LightBox, tells GlobeSt.com. “One is that before the pandemic took hold, the market was in a positive position. Fundamentals in every asset class were strong, capital was abundant and the forecast called for loan origination levels that were at least as high as 2019’s. While the relative strength of the market varies considerably now by asset class and metro, there is still a great deal of capital looking for a home in U.S. commercial real estate so this bodes well for its recovery.”

As we move deeper into the pandemic, investors have gotten more comfortable transacting, even with uncertainty still plaguing the market. “While we’re at a critical point now as federal support wanes and owners are being forced to deal with the collateral damage associated with the long-term business shutdowns this year, investors are getting more comfortable closing deals again and as distressed assets surface, there is every reason to expect that willing buyers will be bidding on them,” says Crocker. “Last, we are moving into the fourth quarter, which is traditionally the strongest quarter for real estate activity, and the market is already showing signs of increased deal making.”

The pandemic isn’t the only major event on investors’ minds. It is also an election year. Typically, transaction activity is stronger in the first half of the year during a presidential election, but this year, that dynamic has changed. “Normally in an election year, investors try to get big deals done in the first half, anticipating a pull to the sidelines as the election gets closer,” says Crocker. “This year, however, with the pandemic putting on the brakes from March to early June, the past few months brought a gradually increasing level of activity as investors got more comfortable getting deal making back underway. The commercial real estate sector hates uncertainty so a bit of a slowdown is to be expected based on what I’ve seen in past elections.”

However, the outcome of the election could alter the course of investment activity. “If the election results in a new president, it will trigger uncertainty associated with potential changes in federal policy that could impact real estate investors and lenders,” says Crocker. “But what matters most to the market is a mix of healthy property fundamentals, demand for space, properties on the selling block, available debt and equity for property investment and sellers and buyers agreeing on pricing.”