CRE Investors Prepare to Deal As They Wait for the Recovery

Article originally posted on Globe St. on January 30, 2024

It looks like 2024 could be the year when investors lose their fear of the CRE markets even as they note the risks around them. Many will dip their toes in the water, rather than taking a plunge. But there is clear interest in buying and selling, a new CBRE survey of U.S. investor intentions reveals.

Investors remain worried about persistent high interest rates, tight credit and a mismatch between buyer and seller pricing, but the fear of a recession has lessened. The largest percentage of buyers are expected to be developers, private equity funds, real estate funds, and REITs. But they are likely to demand price discounts.

“Over 60% of respondents expect to purchase more real estate in 2024 than in 2023, compared with only16% in 2023 versus 2022,” CBRE reported. “Despite lower property values, 40% of respondents expect to sell more assets in 2024 than in 2023, compared with only 14% in last year’s survey.” Potential sellers include private equity and real estate funds.

Just over half of investors expect the recovery to take place in the second half of 2024. One third look to the first half of 2025 to see a pickup. But CBRE thinks it could happen earlier this year if the 10-year Treasury yield falls faster than expected, and projects the yield to drop to 3.6% by year end.

Dallas, Miami, Raleigh and Nashville were the preferred markets for total property returns, but some gateway cities like Boston, New York City and Washington, DC also ranked high. Atlanta, Charlotte and Tampa also got the nod.

From an investment perspective, Dallas, Miami, Raleigh, Atlanta, Nashville, Charlotte, New York City, Phoenix, Tampa and Austin were the most favored.

Multifamily, industrial and logistics property will be the most in demand in 2024, CBRE projected. In the multifamily category, 90% of investors are looking for Class A properties, while nearly half favor value-add Class B or C assets. Industrial and logistics investors also prefer Class A. Retail investors want centers anchored by grocery stores. In the office category, 60% of investors favor prime/trophy properties.

Bargain-hunting will persist, with discounts expected in all sectors, especially for value-add offices and shopping malls.

There may not be long to wait before the spigots are loosened.