The Fed indicated that it expects an additional 50 bps in cuts this year and 100 bps in 2025. The forthcoming rate cuts, coupled with lower bond yields, will bolster commercial real estate investment activity and asset values. CBRE forecasts a 5% increase in annual investment activity this year, with further acceleration next year. Despite slowing job growth, we expect the economy will avoid a recession and a soft landing will buoy occupier confidence, resulting in resilient demand for space across all commercial property types.

CBRE finds that there has been no material change in commercial real estate investment activity or values in the months just before and after federal elections, despite widespread belief to the contrary. This is not to say that certain policy proposals will not impact commercial real estate market fundamentals and investment activity in the long term. Key policy areas that could impact commercial real estate during the next presidential administration include trade, taxes, regulations, government spending and the federal budget deficit.

The delinquency rate for retail commercial mortgage-backed securities (CMBS) has decreased to its lowest level since the pandemic, with $6.3 billion in delinquent loans as of July, representing 5.6% of total outstanding CMBS loans. This decline contrasts with trends in the office, hospitality, and multifamily sectors, driven by post-pandemic consumption and favorable market conditions. However, challenges remain, particularly for loans delinquent for over 90 days and properties in maturity default, especially regional and super regional malls. Falling interest rates and a strong retail environment may improve refinancing opportunities by 2025, but some borrowers may still struggle.

Despite market sentiment that interest rates are currently elevated, they are still well below the historic long-term average 10-Year US Treasury rate of 5.86% (since 1962). The yield curve for mid-to-long term maturities is no longer inverted indicating investor sentiment that a potential recession is no longer on the near-term horizon. The Federal Reserve has begun an easing cycle, lowering its benchmark rate by 50 basis points, with further cuts anticipated. This reduction in rates presents opportunities for investors, such as refinancing existing loans and expanding portfolios. However, the pace and extent of future rate cuts will depend on economic data and inflation trends. While the Fed aims to balance employment and inflation, there is still a possibility of a recession, which could influence the overall economic landscape and the multifamily market. Credit spreads have compressed since the beginning of the year and there are bridge loan products available providing short term flexibility to those borrowers in need of finding gap funding in anticipation of rates dropping before locking in long-term permanent financing.

We have seen a rise in the number of real estate owners increasing their transaction velocity as they have patiently waited for clarity on timing of rate relief which has already begun to flush through the market as treasury indexes have declined. Those who are facing increased borrowing costs from floating interest rates or near-term maturities of their relatively low fixed rate loans need accretive financing. Investors have capital ready to deploy and many will not wait to be the last to transact before declaring that asset prices and rates are stable.

As active participants in the market across a broad range of lender and product types, our Team is well positioned to identify the most accretive financing solutions, enabling our Clients to consistently achieve the best possible outcomes for their commercial real estate financing needs.