If you are in the commercial real estate business, it is likely that the word “stuck” has been a common refrain you’ve heard when discussing the state of the market over the past several years. What does it mean and who is most affected by it?
Today’s “Fear and Greed” Index from John Burns Research reinforced an ongoing sentiment- showing nearly three years of flat-lined outlook, with surveyed participants reporting neither a pessimistic nor optimistic outlook across various CRE asset classes. Combine this a 10 Year Treasury going on nearly three years hovering within 75 bps above or below 4% and an M2 Money Supply today at nearly the exact same levels as four years ago, and you wind up with a good ole fashioned “stuck” market.
In the commercial real estate ecosystem, it is the brokerage community that bears the brunt of this persistent tightrope-walk-across-skyscrapers that the market has played since the middle of 2022. While (sensible) landlords and developers, tenants and businesses, and even lenders have found this malaise to be an opportunity to right-size their balance sheets and assess their operations all while cash flowing from an otherwise “healthy” economy by most metrics (Unemployment Rate, GDP, CPI, etc.). It is those real estate professionals reliant primarily on sales transaction volume, meanwhile, that have had a hard time answering the question they get so often: “How is the market?”. Great commercial brokers keep their finger on the pulse across all aspects of the industry, so of course while their pocketbook may feel lighter, the answer to the question has never been more complicated. And while there seems to be this ongoing general contentment or even apathy towards the level of transaction volume amongst these brokers customers or clients, they await something… a gust of wind that is seemingly long overdue to knock this tightrope-walking market out of the clouds.
While today we continue to stare straight ahead of this unchanging view of the horizon line; it is clearer now more than at any point in the past three years that speed bumps, twists, and turns await us just out of view.
My suspicion that the catalyst is the long discussed “wall of maturities” in the conventional debt market with lending institutions finally eager to pull back low-rate loans made in 2020 and 2021 in lieu of high-quality borrowers with good projects ready to move at today’s higher rates. This will force stressed borrowers to mark their property to the market for the first time in years and face some tough realities. Alongside this reality, the geopolitical trade wars may continue to tighten up tenant activity in the coming year, which may further provide stress to owners in the retail and industrial sector.
Brokers remaining steadfast to their craft in the face of these unchanging winds will find great opportunities at the point these winds begin to change. Red Rock’s team will be poised to capitalize on the moment once it arrives, and we look forward to what the future holds for our team!