CRE investment slows amid rising rates

“While sector preferences are largely unchanged from last year, more investors are adopting opportunistic and distressed strategies to take advantage of market conditions,” the study reads. “Most expect price discounts of up to 30% across sectors, with shopping malls and value-add office assets expected to offer the greatest. Despite changes in strategy and pricing, almost 70% of respondents expect no change in fund allocations to real estate from last year.”

Where the high-performing markets are in CRE

Investors continue to prefer high-performing Sun Belt markets, led by the Texas markets of  Dallas/Fort Worth and Austin, along with Miami, Los Angeles and Nashville, the study found.

Adoption of ESG (environmental, social and corporate governance) standards will likely continue, researchers found. More than 80% of respondents do not think that deteriorating economic conditions will affect their adoption of ESG criteria altogether. Nevertheless, about half of respondents think the current environment will limit the extent to which ESG criteria are considered in their investment decisions, according to the study.

The bottom line, according to the study: “Concerns over rising interest rates, tighter financial conditions and a looming recession are negatively impacting investor sentiment. This will weigh on commercial real estate investment activity, particularly in the first half of 2023. CBRE forecasts that 2023 investment volume will be down by 15% from last year. As interest rates and economic conditions stabilize in the second half of 2023, we expect investment activity will increase.”

CRE industry veteran weighs in

Mortgage Professional America reached out to Joseph Rubin of Miami-based EisnerAmper – one of the nation’s largest accounting, tax and business advisory firms – for additional insight. He reached out to MPA while at the CRE Financial Council in Miami, where “…everyone is trying to assess whether the markets will improve this year,” he relayed back.