Here Are the Top Bull and Bear CRE Metro Markets

Trepp named its top choices for bull and bear CRE metro markets and did the same for the single most property type and metro combination, during July 2024. The firm is trying to identify what drives positive and negative investor sentiment.

At the top of the bulls is Seattle-Tacoma-Bellevue, WA. The economy is still strong, even with problems at Boeing, because there are still Amazon, Microsoft, Starbucks, Costco, and Nordstrom. There are many maturing CRE loans, but little CRE distress compared to other regions. Of the current outstanding loan balances, 5.67% originated in the last 12 months, which is a slight pullback, and 8.50% will mature in the coming 12 months. The region has the highest overall average cap rate at origination and the lowest delinquency and special servicing rates. Right now, distress and issuance are looking good.

Number two bull is Phoenix-Mesa-Scottsdale, AZ. It also saw a slight pullback in recent originations, with only 7.81% having happened in the last 12 months. And 10.42% of current outstanding loan balances will mature in the next 12 months, which is something to monitor. But there’s a big population and the CRE market has a low delinquency rate combined with a high average debt service coverage ratio (DSCR). Retail and lodging markets are strong.

The third bull is San Jose-Sunnyvale-Santa Clara, CA, also known as Silicon Valley. There’s a strong economy, major tech companies like Apple, Alphabet, and Meta, many high-paying jobs, and strong consumer spending. There is a high aggregate occupancy rate, an average cap rate on the tighter side, and a very high DSCR, though distress, while low, is on the rise. Only 3.91% of the outstanding low balance originated within the last 12 months. About 8.34% of the current balance is scheduled to mature in the next 12 months.

The biggest bear, being the most non-performing, is Memphis, TN-MS-AR. It has the ninth smallest CRE debt market by outstanding balance. Cargo transportation and logistics are the big market movers in the region, making it subject to changes of business and consumer consumption. Shipping and logistics can go down. Additionally, companies order less inventory. CRE distress is widespread. The largest single delinquency is the $22.03 million Lenox Park Loan, which went 30-day delinquent for the first time in July 2024. Lending has picked up a bit. About 8.06% of current balances happened in the last 12 months and 7.39% of the balance will mature in the next 12 months.

The second largest bear is Milwaukee-Waukesha-West Allis, WI. It has the sixth-smallest CRE debt market by outstanding balance among the top 50 MSAs and it faces significant economic vulnerabilities. The region depends on white-collar jobs in finance, commodities, and manufacturing. Home to some big Fortune 500 corporate headquarters, a downturn in consumer discretionary spending — something that has been a worry of many companies — could hurt the region. Only 3.83% of the current outstanding balance originated in the past 12 months but 8.09% of the current outstanding balance will mature in the coming 12 months. Trepp warns that the metro could face a deleveraging.

The third bear is Kansas City, MO-KS. There’s a small CRE debt market with major employers concentrated in producers, processors, and distributors of agricultural and manufacturing goods, so overly concentrated. Some newly delinquent larger loans such as the $65.5 million City Club Crossroads KC loan, which is 30 days delinquent as of July remittance, are pushing the delinquency rate higher. Only 6.50% of the outstanding balance originated in the last 12 months. But only 6.05% of the current outstanding balance will mature in the next 12 months, indicating more recent lending than maturing debt of late.