It may still be too early for investors to pop the cork on the champagne bottle to celebrate the rebirth of the CRE market, but they may be excused for gingerly beginning to tear off bits of the foil that holds the cork in place.

The Real Estate Roundtable’s Sentiment Index for 4Q 2024 reveals that a majority of the savvy operators who responded to its latest quarterly survey are “cautiously optimistic” that signs of recovery are showing and are likely to be on full display in 2025. The Index achieved a score of 73 – up 9 points from 3Q 2024 and the highest since 4Q 2021.

The Sentiment Index is the average of two components: the Future Index and the Current Index. It measures the views of senior CRE executives on current conditions and the future outlook for overall market conditions, asset values, and access to capital markets.

The Current Index recorded a score of 69, up 10 points from the third quarter, and the Future Index scored 77, its highest level since 2011. Large majorities of respondents think conditions are better now than at the same time last year (77%), and that they will be even better one year from now (88%).

The value of assets is also expected to rise. Almost all respondents believe asset values will be higher or the same in a year, “indicating some semblance of expected stability,” the report said.

More than six out of 10 think the availability of equity and debt capital has improved over the year, and 80% believe 2025 will be even better. However, the cost of capital remains high.

The Sentiment Index also revealed improved perceptions of market conditions, both current and future. Views of current conditions rose 37 points and of future conditions 20 points, for an overall increase of 29 points. “Although there is some concern that multifamily assets will plateau in certain geographic areas, the market is optimistic about industrial development, Class A office space, shopping centers and data centers,” the report noted.

At the same time, respondents were also realistic about potential setbacks. One wanted to know how bad the damage was before going forward. Another cited events like recent natural disasters, geopolitical wars and port strikes as evidence of “the fragility of the CRE outlook.” Yet another noted that the industry continues to recalibrate: “Quality assets and their sponsors will do well, while overleveraged, obsolete and impaired assets will suffer greatly,” they warned.

Others expected a slow recovery in leasing, capital markets and transactions until “the herd starts moving.” The high cost of insurance is another major concern.

Another respondent noted that corporate earnings are growing, and clients are leasing more office space, though the East Coast is ahead of the West in terms of return to office and leasing activity. Demand was viewed as strong in shopping centers, retailers and restaurants.

The inflow of entrants into the data center space also drew comment, especially on the role of scaled managers, defined as “asset managers that have raised significant capital and are considered to have a competitive advantage in the market,” enabling them to access better deal flow and be more selective about credit selection and deal terms. In the view of one respondent, “scaled managers with hyperscale data centers will dominate.”

Although 79% of respondents thought asset values would be higher in a year, there was also caution. One commented that multifamily asset prices are the worst they have been in a long time. Another said the only office deals happening are deeply distressed and on a per-square-foot basis, adding that there have been few significant trades and a “huge bid-ask spread.” “The difficulty in getting loans has made transactions more challenging, resulting in a large bid/ask spread,” said another.

“There’s a big difference between the private companies and public companies on risk, so the private companies are willing to overpay, especially for industrial assets,” one respondent stated.

Some 61% of respondents believe equity capital is more available, and 66% think the same about debt capital, with even greater optimism about the year ahead. However, a number also felt funding is still hard to come by. Some complained that it is difficult for new entrants to raise equity capital because of scrutiny by limited partners, who also want to see the return of capital before making fresh investments. “The redemption queue and ODCE [Open End Diversified Core Equity Index] valuations will inhibit this recycling of capital,” said another.

Funds are available from high net worth and family capital, but their cost is higher, one respondent said. Life insurance companies are also becoming more active. Regional banks have resumed some lending but are taking a conservative approach, another noted. Though lending to the office market is largely frozen, “the CMBS market has reopened for office properties,” one commented.

“Leaders in the industry are cautiously optimistic that the CRE industry is showing signs of recovery and is well positioned for activity in 2025,” the report summed up.