CREFC's 1Q24 Sentiment Index Reveals Caution Amid Changing CRE Finance Landscape

NEW YORK, April 25, 2024 /PRNewswire/ -- The CRE Finance Council (CREFC), the industry association that exclusively represents the $5.9 trillion commercial and multifamily real estate finance industry, today released the results of its First-Quarter 2024 (1Q 2024) Board of Governors (BOG) Sentiment Index survey. Conducted between April 4, 2024, and April 15, 2024, the survey has consistently provided valuable insights into the sector since its inception in the fourth quarter of 2017.

The 1Q 2024 Index experienced a slight decline, dipping to 105.4, a 4% decrease from the previous quarter's 109.9. This change points to notable shifts in the economic outlook, the impact of higher interest rates for longer, and cooling expectations around borrower demand for financing.

Key Highlights from the 1Q 2024 Core Questions

The survey's core questions revealed significant insights:

• ECONOMY. 61% of respondents expect the U.S. economy to perform the same over the next 12 months compared to the preceding 12 months, up from 31% last quarter. Only 24% anticipate better economic performance, down sharply from 54% in the preceding quarter.
• RATES. Opinions on the impact of mortgage and cap rates are mixed, with 31% expecting a positive impact and 37% foreseeing a negative one, marking a shift from the previous quarter's more optimistic 48%.
• CRE FUNDAMENTALS. Expectations for commercial real estate fundamentals are cautiously optimistic; 24% predict improvement over the next year, up from 15% in the previous quarter.
• FINANCING DEMAND. Although still positive, there is a noticeable cooling in expectations for borrower financing demand, with 69% anticipating increased demand, down from 88% in the prior quarter.
• OVERALL SENTIMENT. The industry's overall sentiment appears to be stabilizing, with 84% of responses being positive or neutral, an increase from 81% in the prior quarter.

Observations from Additional Topical Questions:

The additional questions in the 1Q24 Sentiment Index provided deeper insights into critical areas affecting the industry. Notably, the Federal Reserve's anticipated interest rate policies reveal a cautious outlook, with 12% of respondents expecting no rate cuts in 2024 and 80% predicting one to two cuts, highlighting preparedness for a persistent higher-rate environment. Asset class performance expectations continue to show strong confidence in the industrial sector, while signaling significant challenges for office.

Board members also expressed concerns about the "more uncertain economic outlook with stickier inflation" and the potential for AI to impact office demand. The dual-edged impact of sustained high interest rates is expected to challenge existing debt structures while potentially fostering refinancing and acquisitions. The potential influences of the upcoming elections and regulatory changes were noted as additional sources of uncertainty.

Lisa Pendergast, Executive Director of CREFC, emphasized the industry's resilient response, stating, "The 1Q 2024 survey results reflect a more tempered outlook amid continued economic uncertainty. While there is a notable shift toward a more cautious outlook, this is balanced by strategic adjustments across our industry. We are navigating these uncertain times with a focus on adapting to market realities and today's regulatory environment."

For further details on the CREFC 1Q24 BOG Sentiment Index and to view the full report, click here.

About CREFC and the Board of Governors Sentiment Index

The CRE Finance Council (CREFC) is the trade association for the commercial real estate finance industry. More than 400 companies and over 18,000 individuals are members of CREFC. CREFC's members serve a critical role in the US economy by financing office buildings, industrial and warehouse properties, multifamily housing, retail facilities, hotels, and other types of commercial and multifamily real estate.

Nearly 60 senior executives in the commercial real estate finance markets represent CREFC's Board of Governors and hail from every sector of the commercial real estate lending and mortgage-related debt investing markets. CREFC Governors include balance sheet and securitized lenders, loan and bond investors, mortgage bankers, private equity firms, loan servicers, rating agencies, attorneys, accountants, and others. CREFC's Governors serve up to six years on CREFC's Board and are all senior members in their firms and the industry.

CREFC's BOG Sentiment Index aims to gauge quarter-to-quarter shifts in market conditions for the CRE finance market and the outlook for the future. The survey consists of nine core questions and additional topical questions (not factored into the BOG Index) and was first administered in 2017. The Sentiment Index equally weighs the responses to each question and then sums those weighted responses to create a single index.

SOURCE CRE Finance Council