Real Estate Pulse - Q3 2024
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On the Upswing, Despite Wobbles
Identifying the bottom or near-bottom of the property pricing cycle and acting on it is the holy grail sought by commercial real estate investors. Second quarter data for the US NCREIF National Property Index is feeding hope that a bottom is in sight. Such hope is supported by transaction volumes and valuation data along with an ongoing positive macroeconomic backdrop. At the same time, the overhang of distressed property debt remains threatening.
Additional highlights
- Total return performance reported for the NCREIF-NPI was much improved for 2Q2024 but still negative. One-year total return at -5.3% compares favorably with the -6.9% one-year total return for the four quarters ending March 2024.
- All four of the primary property sectors (Industrial, Office, Residential and Retail) showed improvement in the second quarter.
- Total transactions inched up but remained 2% below Q2 2023. Is this a sign of a cycle bottom in transactions? Are buyers and sellers beginning to come together?
- Apartment prices were down 1.8% for the quarter and 7.5% for the year, perhaps helping to narrow the gap between sellers and buyers.
- While stabilizing property prices are good news, the shadow of distressed commercial mortgage debt remains. RCA estimates $94 billion in current distress of which $11 billion was added in the second quarter.
- With sparse transactions in the first half of the year, interest rate cuts afoot, and suggestion of bottoming values, it is possible that investment activity will pick up noticeably over the quarters ahead.
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