Investors Say They'll Remain on Sidelines Until 2025

Despite market volatility, investors and property owners are largely reporting stability in real estate values and rents and they expect CRE values and transaction volume to remain steady throughout the remainder of the year.

According to Matthews Real Estate Investment Services’ most recent sentiment survey, 55% of investors said the value of the real estate on average is the same for the first half of the year, while 46% said their rents have remained the same. About 30% reported values as lower and 2% said values were much lower over the first half. On the other hand, 30% said rents are higher and 2% said rents are much higher, according to the report.

These trends suggest a significant variation in real estate performance and could be related to Class A construction across the Sunbelt region, said Matthews. These deliveries have pushed up average rent, but vacancies have also increased across the board.

About half of investors rated their CRE investments as average for the first half, while 33% characterized them as good and 12% as poor.

Survey respondents largely indicated they expect steady or flat values and transaction volume for the remainder of the year. Investors expect a modest interest rate cut of 25 basis points by the end of the year, however, transaction volumes are unlikely to appear until next year due to a market lag in response to interest rate shifts. The majority of respondents do not expect a recession during the second half.

About one-third of respondents signaled cautious optimism about values and transaction volume for the second half. The movement of interest rates will play a significant role in how the market responds, with private investors likely to stay on the sidelines while institutional investors might look to capitalize on perceived bargains, said Matthews.

The report pointed to growing concerns about the retail sector, particularly related to rent payments for restaurants. Multifamily properties are projected to be the top performers in the second half of 2024, followed by industrial properties. The outlook on the office sector trailed. Most investors plan to remain on the sidelines throughout 2024, largely due to challenges in finding suitable properties, said Matthews. While some are considering increasing their investments, many believe that the best time to buy will be in the second half of 2025.

Survey responses indicate that the primary concern for CRE in the second half is the anticipated economic downturn and related operational challenges such as increasing vacancies and decreasing rents. This concern surpasses those related to market saturation, political changes and interest rate fluctuations, according to the survey.