CRE Firms Make Plans for Stabilizing Environment

Commercial real estate firms are largely staying the course with a focus on managing their existing portfolio and exposures over the near term as they prepare for improved operations in a more stabilized environment.

This is according to Altus Group’s quarterly CRE industry conditions and sentiment survey, which tracks current market sentiment, conditions, and issues impacting commercial real estate.

Of the respondents, 40% said they are focused on managing an existing portfolio in the near term, while 22% said they plan to focus on raising capital, 20% are focused on deploying capital, 10% are looking at de-risking or divesting their portfolio and 7% are pausing to re-assess.

Clients want to position their portfolios to overperform once the market truly returns to normal, said Altus senior director Robert Tafaro. Instead of hyper-focusing on pending interest rate cuts, with inflation moving in the right direction and fundamentals staying relatively healthy, the institutional outlook is generally positive in the United States, he said.

During a webinar about the survey, a participant poll asked about sentiment around transaction intentions for the near future. The majority of U.S. respondents (80%) said they plan to transact in the next six months, similar to Q1 2024. About one-third of respondents anticipate buying and selling, a quarter are focusing on acquisitions, and 17% are planning to sell.

Altus senior director Alex Jaffe noted that there have been headlines suggesting a significant amount of market stress leading to discounted acquisition opportunities.

“To be honest, we haven’t seen it in most of the core portfolios we work with,” he said.

The survey revealed that respondents think the land/development, life science, multifamily, hospitality, and office sectors are currently overpriced, while single-family residences and industrial sectors are fairly priced. When it comes to retail, 83% believe the sector is fairly priced, and Altus described it as a sleeper sector depending on consumer spending.

Asked which property type would be the strongest performer over the next year, about a third of poll respondents said residential, with non-traditional sectors also inspiring confidence. A quarter of respondents said industrial will perform strongly, and 14% leaned towards retail. The office sector was generally discounted.

This roughly aligns with the survey results, which showed improving expectations for all housing sectors and a drop for industrial. “We’re seeing a shift away from office investment and other sectors and increased investor appetite for alternative or niche sectors,” said Tafaro, pointing to self-storage, senior housing, and student housing.