CRE Market Shows Resilience Despite Recent Economic Volatility
CMBS issues continued during the month and lending spreads remained stable.
The commercial real estate market has been largely unaffected by broader market volatility for July, including disappointing indicators about job growth, unemployment and wages, according to LightBox’s Monthly CRE Activity Index. The firm noted new Commercial Mortgage-Backed Security issues and transactions continued during the month and lending spreads remained stable.
The index has revealed five months of steady increases, which is fueling cautious optimism about the direction of the CRE market. The index is an aggregation of daily transactions on the firm’s network measuring shifts in the velocity of property listings, valuations and environmental due diligence. July came in at 92.4 compared with 92.3 in June but up more than 10 points from 81.4 in July 2023. The strong performance was driven by single-digit month-over-month increases in demand for environmental due diligence and appraisal activity that supports early-round deal-making. As usual for mid-summer, properties listed for sale declined month-over-month but were still up 21% from July 2023.
During the month, the CRE market showed several encouraging signs, including more portfolios changing hands, an influx of bidders on individual property listings, and a new round of sales across asset classes and geographies. Interest in listings for multifamily and retail are above the national average across all property types, according to LightBox’s analysis of nondisclosure agreements, suggesting prices are unlikely to fall much further.
“We saw high volatility in the market in July, yet the CRE market continued to soldier on. Lenders are lending. Sales are taking place,” said Manus Clancy, LightBox head of data strategy. “The market is looking past volatility to focus on closing the deals that make sense. The silver lining for the CRE market is that falling Treasury yields should support strong asset prices.”
Looking ahead, LightBox said the second half will challenge investors to find the best opportunities despite potentially continuing market volatility, particularly in re-developing older properties into desirable uses with amenities valued by today’s tenants. Although distressed properties made headlines last month, loan modifications and loan sales were up, indicating fewer distressed assets are likely to filter through to the market, said LightBox.