Recession Speculations, Multifamily in Flux, and Landlords going Green


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Welcome to the CRE News Digest from First American Title NCS, where we explore the biggest stories in commercial real estate. As a legacy brand working in CRE for more than 120 years, First American keenly knows the market and the forces that are impacting our clients’ businesses.

The Big Picture: Recession Receding?

For much of 2023, economists, financial leaders, and the general public have been preparing for a potential recession, with commercial real estate experts wary of how a slump could impact the CRE market. Now that the likelihood of a recession has decreased, experts are beginning to reassess the state of CRE within the U.S. and global economies.

 Overall, the outlook is mixed. Further tightening of bank lending is the primary concern if the economy eventually slides. According to CNBC, some experts are looking to recent Federal Reserve surveys of bank lending officers as cause for concern, as the results look similar to the pre-recession measures of 2000 and 2007. Additionally, continually-high interest rates slowed global investment by 52% in the first half of the year.

 Other indicators are pointing to a potential positive shift in CRE moving into 2024, if not a full upswing. First American Senior Economist Xander Snyder sees the current market as the beginning of an adjustment for CRE, pointing to a Q2 increase in loan originations from some lenders as a bright spot. Commercial Property Executive echoes these sentiments, sharing that long-troubled office leasing volume increased after three straight quarters of decline.

 As the broader markets move farther away from all-out recession, CRE remains in its now-familiar holding pattern. The 2024 landscape will depend on the Federal Reserve’s interest rate campaign, its impact on bank lending and investment, and upcoming debt refinancing deadlines.

 State of the Sector: Multifamily

What is the state of the multifamily asset class going into Q4? It depends who you ask. Although the fundamentals remain relatively strong (especially when compared to the office asset class), new data on investment sales volume, rent growth, and loan delinquency has subjected multifamily to increased scrutiny. A 70% year-over-year decline in multifamily investment sales volume and slow rent growth are causes for some concern among industry leaders. While multifamily loan delinquency rates increased in Q2, head of commercial real estate research at MBA Jamie Woodwell shared that “they remain at the lower end of historical ranges.” With an anticipated 200,000 units coming to the market in Q4, rent growth is expected to “creep along.”

 Innovation: CRE amid a Changing Climate

As markets contend with the wide-ranging impacts of global climate change, CRE is no exception. Buildings are one of the largest sources of carbon emissions in the U.S., and cities nationwide are beginning to implement taxes and fines to address the issue and encourage landlords to go greener.

 A September report from The Wall Street Journal highlighted how as these regulations go into effect, landlords are faced with the additional costs of retrofitting their buildings to comply with sustainability standards. These costs are compounded with higher borrowing costs as well as the fact that many of these buildings are still sitting vacant. However, there are significant financial benefits to reducing building emissions. Greener buildings could be a draw for new tenants, and under the Inflation Reduction Act landlords can be subsidized for these projects. Additionally, stakeholders are also exploring the sustainability benefits of converting offices to climate-efficient multifamily units, although the feasibility of these projects is still being studied. 


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