Weekly Real Estate News
Summary
CREFC's commercial real estate finance sentiment index fell 17.5% to a three-year low as all nine core measures weakened.
Confidence among commercial real estate finance leaders deteriorated sharply in the third quarter, with concern spreading beyond interest rates into the economy, property fundamentals, borrower demand and market liquidity.
The CRE Finance Council said Monday that its Board of Governors Sentiment Index fell 17.5% to 83.3 from 101.0 in the second quarter. It was the lowest reading since the third quarter of 2023 and 34% below the record 126.6 reached in late 2024.
The deterioration was unusually broad: all nine core questions weakened quarter over quarter.
Rates remain the dominant concern
Ninety-two percent of respondents expect mortgage and capitalization rates to weigh negatively on CRE finance businesses over the next year, up from 53% in the second quarter. CREFC said that was the most negative rate reading since the third quarter of 2022.
The survey was conducted Sept. 21 through Sept. 28, when the 10-year Treasury yield was around 5%. Seventy-eight percent of respondents expect the yield to finish 2026 at 5% or higher.
Economic expectations also worsened. Sixty-two percent expect the U.S. economy to perform worse during the next 12 months, compared with 24% in the prior quarter. Only 3% expect improvement.
Borrower demand turns negative
Financing demand expectations turned net negative for the first time since late 2022. Twenty-four percent expect stronger CRE and multifamily borrowing demand during the next year, while 35% expect weaker demand.
Liquidity expectations also weakened. Although 65% still expect little change in CRE debt-market liquidity, 24% now expect contraction, up from just 5% in the second quarter.
Property fundamentals moved into negative territory as well. Thirty percent expect occupancy, rents and net operating income to worsen, compared with 22% expecting improvement.
More pressure may be coming
The survey points to continuing refinancing and valuation risk. Forty-six percent of respondents expect U.S. commercial property prices to decline during the next 12 months, while 38% expect lenders to tighten terms on new CRE loans.
CMBS stress remains another concern. With CREFC citing an August CMBS delinquency rate of 7.85%, 61% of respondents expect the rate to end the year at 8% or higher.
The significance of the third-quarter reading is not one pessimistic data point. It is the breadth of the shift. Rates remain the largest concern, but the weakness now extends across demand, liquidity, fundamentals, securitized credit and the broader economy — precisely as a large volume of commercial real estate debt continues moving toward refinancing.
