'Hold On For Dear Life': Majority Of Bisnow Survey Respondents Expect Little Relief In 2024
In an industry that thrives on certainty, very little has gone according to plan halfway through this year. Many Bisnow readers now believe there won’t be much change in activity between now and the end of 2024, prompting most to hunker down for another challenging six months.
2024 started on a hopeful note for commercial real estate, according to our previous survey published early this year. After almost 24 months of navigating expensive debt in limited supply, optimism was rekindled when the Federal Reserve forecast up to three interest rate cuts this year.
But those cuts have yet to materialize, and a longer-than-expected holding pattern has emerged. Six months down the line, Bisnow once again collected hundreds of responses from commercial real estate players to determine how their sentiment and plans of action have changed midway through the year.
Feedback was varied, but in general, respondents said they aren’t planning a major pivot between now and the end of 2024. Rather, the majority are adopting a heads-down approach, opting to use the prolonged slowdown as a chance to streamline operations.
“I will continue to simply control my own controllables,” a Houston-based broker told Bisnow when asked how he plans to carry out the “survive till ’25” mantra. He was one of 61 global executives who weighed in on how they are shifting strategies in a year that didn't go as planned.
“For however much I am at the whims of macroeconomic and political factors, I can't control them anyway,” he said. ”So instead, I continue to lean on the basic [tenets] of good business practices. Do the little things right and the rest tends to fall into place.”
The volume of delinquent CRE loans held by banks has been gradually increasing, partly due to the Fed’s most recent decision to keep rates unchanged, according to Moody's data reported by CRE Daily. Some property owners now face the difficult decision of what to do with their buildings.
But not all sectors are as distressed as others, and some owners are in a relatively comfortable position, patiently waiting for circumstances to change. Lending for certain asset types has picked up slightly from its glacial pace in 2023, enabling some buyers to capitalize on lower prices.
“We are bullish that now is the time to buy,” an owner-investor focused on the mid-Atlantic markets told Bisnow. “If you can make the economics work now, they will only perform better as the market improves. We believe that we are at or near the bottom.”
After so many months of uncertainty, CRE is extremely leery of predicting what’s to come in 2025. But many agree that those who have been able to survive the turmoil will be rewarded once the storm has passed.
“I’m not sure ’25 is going to be much better. It could be worse, but people that put their heads down and can execute in this market are going to be well positioned on the other side,” a Phoenix-based owner, operator and developer told Bisnow.
“I don’t think it’s about pivoting a strategy. It’s about revisiting underlying assumptions across every aspect of the business, from acquisitions to asset management and from demand drivers to capital structure.”
Hope Springs Eternal On Rate Cuts
The Federal Reserve hinted at three rate cuts in 2024, with policymakers projecting a rate of 4.6% by year’s end. As of July, not a single cut had been made, though nearly 50% of Bisnow readers haven't lost hope the Fed will deliver on its new projection of one cut by the end of the year.
How investors plan to react to that first rate drop is still unknown. Some believe it will trigger an immediate spike in activity, while others said it will simply set the stage for more transactions in the not too distant future.
“Unfortunately it will be more symbolic than substantive,” a Washington, D.C.-based executive in the REIT space told Bisnow. “The market needs certainty as to the level at which interest rates and therefore cap rates are going to settle out, and the first interest rate cut will be an important step but by no means the definitive one.”
Close to 23% of survey respondents said there are still two rate cuts to come this year, down from the 38% who answered the same way earlier this year. Only about 6% believe there will be three or more cuts, while nearly 22% said the Fed will hold off on any decreases this year, up from 17.5% in Bisnow’s last survey.
A Small Uptick In Optimism On Transactions
The majority of Bisnow readers still plan to avoid trades this year, though the percentage has waned slightly since answering the same question in late 2023.
The Fed has kept rates steady for the past six meetings, motivating some sellers — especially those with looming maturities — to recognize reality and capitulate on pricing. About 14% of owners told Bisnow they plan to offload assets over the next six months, up from about 7% at the end of 2023.
The mere possibility of interest rate cuts has begun to shake loose some of the frostbite that enveloped the transaction market last year. For the most part, though, a persistent bid-ask spread and higher-for-longer rates will keep many buyers and sellers in wait-and-see mode.
“Hold on for dear life,” a Denver-based analyst in the construction industry said of her survival strategy. “But, actually, hold, manage risk, wait for the storm to calm.”
More Readers Believe REITs Will Be Making Moves
The share of survey respondents who expect deal activity among real estate investment trusts to pick up this year has increased significantly since Bisnow first asked the question in late 2023.
Nearly 59% of respondents forecast an uptick in initial public offerings and M&A over the next six months. In the last survey, 39% of respondents said they expected an annual increase over 2023.
The optimism could be rooted in the steady flow of REIT activity the market has seen so far this year. One IPO has been completed, with American Healthcare REIT raising $773M, according to Nareit. Zero IPOs were finalized in 2023.
Blackstone investors announced deals to acquire Apartment Income REIT for $9.2B and Tricon Residential for $8.8B, according to Nareit. Last year, 11 traded U.S. REITs were acquired for a collective $44B.
Changing Of The Guard Or Staying The Course?
The last time Bisnow asked this question, the election seemed far away, and readers had some fun, suggesting figures like Elon Musk, Dwayne “The Rock” Johnson, Mickey Mouse and Ronald Reagan might be possible write-ins and also-rans like Nikki Haley and Florida Gov. Ron DeSantis were still in the race.
President Joe Biden edged out a narrow predicted victory, with nearly 37% of readers wagering on the power of incumbency and about 31% betting former President Donald Trump would be the victor.
This time around, respondents took the question a bit more seriously, though their answers may have been different if the survey was just a week or two later — it was conducted in June before a first debate performance by Biden that has been roundly panned as disastrous.
Biden was the expected winner with 337 votes to Trump's 274, according to the predebate survey, putting the race at 49.8% Biden to 40.5% Trump, with about 9.6% weighing in with other candidates or a flat “I don't know.”
Mickey Mouse still got one vote, and it was clear several readers were not thrilled with their choices.
The winner of the election will be “someone that is not deserving of the position,” said one Denver industrial consultant.
“Can't stomach answering this,” said an Atlanta architectural professional.
