Volatile economic indicators and shifting trade policies are creating “short-term noise” for real estate investors. That’s according to a recent market snapshot from Colliers, which went further to note that distinguishing which factors directly impact commercial real estate will be key.
“Those with conviction stand to benefit,” notes David Amsterdam, the real estate services firm’s president of US capital markets. “Investment momentum is building, fueled by pressure to deploy sidelined capital, upcoming loan maturities, capital stack restructurings and a healthier fundraising landscape.”
Investors Seek Varied Funding Sources
Amsterdam says that while private capital remains the dominant funding source, investors are tapping into a range of debt sources, including insurance companies, agency financing, banks and private credit. Additionally, institutional investors are returning to the market, providing stronger liquidity in the market overall.
“Capital remains readily available, with the CMBS market on a record-setting pace. Single-asset, single-borrower deals are popular and several billion-dollar offerings have been met with strong demand.”
Colliers’ research found that occupiers are becoming more active, taking advantage of pricing to secure real estate for their long-term operations. And with many assets trading below replacement cost, supply-side pressure will be limited.
“This dynamic supports pricing and gives the market a chance to catch its breath, allowing improving absorption trends to chip away at vacancies,” says Aaron Jodka, director of research for US capital markets. “And with that, rent gains should be just around the corner.”
Overall, Jodka says signs continue to point to a pricing recovery and while it may not be the “V-shaped” rebound of past cycles, investors are entering the early part of this next phase.
“Market fundamentals should be a major factor in improving property performance,” says Jodka. “Cap rate compression may occur, but operations are likely to play a larger role in return profiles.”
Investors Eye Fed Actions, Look for Opportunities
As the Federal Reserve has eased rates, movement in the 10-year treasury yield is arguably more important for the real estate market, says Jodka.
“The bond market anticipates movement, and in turn has priced in future expectations of Fed decisions. More recently, rates have come in, which has supported additional investor activity.”
Strong tailwinds continue to support the multifamily market, according to Jodka. He also expects a “choppy” rent history to improve, with long-term multifamily demand appearing solid.
Retail and hospitality investors are closely watching economic data to guide their actions. Emerging retail trends indicate spending power differences between higher- and lower-income households, while hospitality is seeing higher income-focused properties outperform.Rebounding from a cyclical low, the office sector has emerged as a leader in sales volume growth. Private capital has dominated, taking advantage of market repricing, while REITs have been relatively quiet. But despite the sector’s strong performance, Jodka says that industrial is the only asset class where volume over the past year has surpassed the pre-pandemic average.
“Investors have allocated an outsized share of their portfolios to the industrial sector in recent years, a trend unlikely to change anytime soon,” notes Jodka.
For more insights and thought leadership from Colliers, click here.
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