What a difference a quarter can make. After undergoing the second-largest drop in confidence on record in the year’s first quarter, the Sentiment Index, which measures confidence in the real estate finance sector, bounced back in the three months through June, surging upward to 112.3 from its low of 87.9 the previous quarter.
The index reflects the results of a survey conducted by the Board of Governors of the CRE Finance Council (CREFC), which represents the industry. “The rebound represents one of the strongest quarterly improvements in the index’s history,” CREFC stated.
“The survey captured a dramatic shift in sentiment as market participants adapted to the evolving economic landscape and found renewed optimism in stabilizing interest-rate expectations and improving capital market conditions.” It was conducted from July 2 to July 22 and had an 80% response rate.
The number of respondents expecting economic conditions to get worse in the next 12 months shrank from 80% to 27%. Stable conditions were expected by 54% and 19% thought there would be improvement. “The majority sees the economy treading water, but optimism nearly triples quarter-over-quarter, while pessimism is cut by two-thirds,” the survey found.
Respondents also seemed satisfied with federal policy: 49% expected a positive impact from government actions, compared to 11% in the first quarter, while 16% anticipated negative consequences, down from 59%.
Some 38% expected favorable rate movement, though 27% -- compared to 30% the previous quarter -- felt the opposite. At least one 25 bps rate cut by the end of the year was anticipated by 78% of respondents – most expecting it to fall to the 4% to 4.25% range. And 87% thought the 10-year Treasury yield would fall to or below 4.5% by year-end.
The outlook for CRE fundamentals like occupancy, rents and net operating income was also mainly positive. “Most expect status-quo fundamentals, but one in four see genuine upside,” the report noted, with 81% expecting improvement or no change, but 19% expecting conditions to worsen. Some 65% of respondents also expected investor demand to rise, up from 35% in 1Q 2025, though 3% still thought it would slip. A sharp rebound in investor demand for CRE/multifamily assets after a soft 1Q 2025 was predicted.
The board is “exceptionally bullish” on demand for financing, CREFC noted, with 86% of its members predicting increased borrower demand and none expecting less. “Confidence in capital availability returned, with 92% expecting better or the same liquidity (up from 74% last quarter), and only 8% expecting worse conditions (down from 26%),” CREFC stated.
In addition, seven out of 10 respondents reported an increasing appetite for new CRE lending in the second half.
Over two-thirds expected positive impacts on the CRE market from the growing demand for data centers.
Some concerns remain, however, with geopolitical shocks at the top of the list, followed by fears of a macroeconomic slowdown. Elevated loan maturities and refinancing risk were also perceived as a potential threat.
Individual comments from some respondents drew attention to other concerns. One pointed to a continuing mismatch in the expectations of borrowers, lenders and investors about refinancing terms that will be “drastically different” from the past. Another noted the uncertainty about the effects of tariffs and the many unknowns the future holds. A third contended that regulatory uncertainty and the lack of clear guidance on a wide range of servicing and special servicing needs pose potential legal challenges for servicers and lenders navigating distressed assets.
“What’s especially encouraging is the breadth of the recovery – from robust borrower demand to optimism around AI-driven data centers. Challenges remain, but the market is regaining its footing,” said CREFC President and CEO Lisa Pendergast.
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