CRE debt origination volumes have exceeded pre-pandemic norms. During the first half of the year, the segment shot up 49% year-over-year, according to Newmark’s Q2 capital markets report. The number of active lenders remains meaningfully lower, however.
All major sectors experienced increases in originations, led by office, senior housing and hotels, the report said. Bank lending was 1% higher than first-half averages from 2017 to 2019, an acceleration in activity that comes as the market prepares to absorb $2 trillion in debt maturities over the next two years. Newmark noted that 37% of this maturing debt originated when the federal funds rate was below 25 basis points, compared with 433 bps today.
“A substantial portion of loans – especially recent vintages across most property sectors, including a large share of office debt – are either underwater or nearing that threshold,” Newmark said. “We estimate that $591 billion in debt maturing between 2025 and 2026 could be potentially troubled.”
Within the equity markets, investment sales increased 16% year-over-year during the first half, but that is down 16% compared with the 2017 to 2019 average. Office sales were up 26%, while multifamily increased 6%. Smaller deals under $100 million made up 63% of volume traded over the past four quarters, but larger deals are beginning to regain some market share, according to Newmark.
Institutional investment is up 9% vs. 2024, while private and owner/user share of transaction volumes have hit an all-time high.
There is about $327 billion of dry powder at closed-end funds, an 18% decrease since December 2022. Dry powder at value-added, opportunistic and debt funds is now well off peak levels, with most of that targeting residential and industrial properties, said Newmark, noting much of it was raised from prior vintages.
Cap rates are leveling off, although they remain historically tight. Market participants have been able to execute on deals due to capital availability and an expectation of recovering fundamentals and values for most property types, according to Newmark.
“While deals continue to happen at narrow rate spreads and debt volume, particularly for refinance, has appeared to recover, transaction volume remains well below pre-pandemic norms, and without spread normalization, transaction activity will continue to lag,” the brokerage wrote.
The NCREIF NPI broadly improved during the second quarter, with all sectors recording positive total returns, including office, where 93% of markets posted in the green territory.
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