Higher interest rates continue to cast a pall over commercial real estate, and the latest Board of Governors Sentiment Index from the CRE Finance Council (CREFC) reflects the gloom.
The second quarter edition of the index dropped 3 percentage points from the first three months of the year to a reading of 105.4. The decrease reflects growing caution among more than 50 senior executives on the trade organization’s board of governors regarding the economic outlook and its effect on commercial real estate lending.
Overall industry sentiment is just 22% positive, down from 35% in Q1, and 61% neutral.
Confidence in the economy continues to plunge, with just 11% of respondents to CREFC’s sentiment survey anticipating better performance for their business over the next 12 months. That’s a drop of more than 50%, slashed from 24% in the prior quarter.
Notably, despite the overall pessimism, executives seem somewhat encouraged by several factors influencing the greater whole. Negative sentiment on federal policies and regulatory actions, for example, ebbed to 26%, with neutral sentiment up to 67%. Twenty-four percent of respondents see improvement in CRE fundamentals, flat from the previous quarter.
Expectations for improved liquidity did slide, dropping from 57% to 46% from March to June, but expectations for financing demand remain strong despite a slip from 69% to 65% quarter over quarter. And while rates remain high and a majority of respondents believe their impact is holding the market back, the share of those viewing the impact of rates positively is up, from 31% in Q1 to 41% in Q2.
“The 2Q 2024 survey results reflect an industry forging its way through significant uncertainty,” said Lisa Pendergast, executive director of CREFC. “As the industry navigates these challenging waters, its resilience and ability to innovate will be key to capitalizing on emerging opportunities while mitigating potential risks.”