Overall sentiment on the commercial and multifamily real estate finance markets has declined again for another quarter. In the third quarter, sentiment dropped to 61.4 from 70.7 in the prior period. According to the Third-Quarter 2022 CREFC Board of Governors Sentiment Index from the CRE Finance Council (CREFC), this is the fifth consecutive decline but not a surprise given the economic uncertainty around rising rates, inflation, and the potential for a global recession.
All but one of the questions asked of the Board of Governors saw negative shifts from the second quarter. For the third quarter, 83% of the board members said they expect commercial real estate fundamentals to worsen, a 49-point jump from the prior quarter. A negative shift in trends in commercial mortgage-backed securities and commercial real estate CLO demand/spreads also was identified. Three-quarters said they believed these trends would have a negative impact on commercial real estate finance-related businesses; only 21% remained neutral.
In addition, sentiment for all commercial real estate finance businesses worsened quarter over quarter, with 89% having an unfavorable view and only 2% answering positively in the third quarter. In the second quarter, 9% indicated a positive outlook with 53% holding an unfavorable view.
The majority of the board, 92%, also said they agree about the potential for the U.S. to experience a recession in late 2022-2023.
“This most recent survey accurately captures the concerns of the industry at large at this time. The Fed continues to raise rates, inflation persists, and the potential of an economic downturn remains top of mind,” said CREFC executive director Lisa Pendergast. “The shape of the commercial real estate debt market changed very quickly in the third quarter, and the surveyed responses reflect that swift shift.”
Pendergast added that CREFC remains optimistic, saying even with the increased likelihood of a recession, the industry is in a much better position than it was in 2008.
