NEW YORK, Oct. 27, 2021 /PRNewswire/ -- The CRE Finance Council (CREFC), the industry association that exclusively represents the $5.0 trillion commercial and multifamily real estate finance industry, today announced the results of its Third-Quarter 2021 CREFC Board of Governors' (BOG) Sentiment Index and Special COVID-19 Survey. The results highlight continued strong demand for commercial real estate (CRE) debt and equity with ample capital availability. Sentiment for all CRE finance businesses remained strong, with 82% of the Board having a positive outlook over the next 12 months, consistent with the previous quarter.
CREFC's quarterly Sentiment Index is derived from the Board's responses to 10 core questions on the state of the CRE finance market, which have been posed to the Board each quarter beginning in the fourth quarter of 2017. Overall, sentiment remained elevated but dropped slightly from Q2 to Q3, driven by a moderating take on the U.S. economy for the year ahead. The Q3 survey indicated that 67% of the Board expects the economy to perform better over the next 12 months, down from 88% in Q2.
"While overall sentiment slightly neutralized in the third quarter, there is great reason for confidence in the CRE outlook as we close out the year," said Lisa Pendergast, Executive Director of CREFC. "With transaction activity increasing and greater demand for both CRE debt and equity, there is much to look forward to. We are paying close attention to the trends that concern our members the most, including the outlook for the office market, cap rates, CMBS spreads, and overall economic performance, and will provide our members with the most up-to-date analyses possible. As we continue the path of recovery across the industry, I look forward to the continued insights and perspectives of our Board."
Special BOG COVID-19 Survey
In addition to the longer-standing Sentiment Index, CREFC introduced an incremental survey beginning in the first quarter of 2020 explicitly focused on the impact of the COVID-19 pandemic on CRE. The current quarter's results of the COVID Survey reflect a continued upbeat outlook, with most of CREFC's lenders (88%) reporting that their lending programs are fully operational, consistent with the previous quarter. Other key takeaways include:
- Continued Pickup in Transaction Activity. 84% of the Board indicated they are seeing the same or more activity today than before the pandemic – up from 57% in Q2.
- Foreclosure and REO Expected to Remain Low. Nearly half (47%) of the Board anticipate that foreclosures and REO assets will remain low, compared to 26% in Q2, with a substantial drop from 12% (Q2) to 3% (Q3) in members who anticipate significant increases to come.
- Concerns for Office Post-COVID Intensify. In Q2, only 5% of respondents ranked office as the asset class that would fare the worst post-pandemic. In Q3, that number jumped to 28%, indicating a greater intensity of worry about the future performance of this asset class amid continued remote and hybrid work models.
- Corporate Travel Still Expected to Significantly Lag Leisure Travel. The percentage of respondents expecting a slow recovery for corporate travel increased from 69% (Q2) to 82% (Q3), while the vast majority (76%) continue to expect a fast recovery for leisure travel.
About CREFC's Board of Governors Sentiment Index
The CRE Finance Council (CREFC) is the trade association for the commercial real estate finance industry. More than 300 companies and 13,000 individuals are members of CREFC. CREFC's members play a critical role in the US economy by financing office buildings, industrial and warehouse properties, multifamily housing, retail facilities, hotels, and other types of commercial and multifamily real estate.
Nearly 60 senior executives in the commercial real estate finance markets represent CREFC's Board of Governors and hail from every sector of the commercial real estate lending and mortgage-related debt investing markets. CREFC Governors include balance sheet and securitized lenders, loan and bond investors, mortgage bankers, private equity firms, loan servicers, rating agencies, attorneys, accountants, and others. CREFC's Governors serve up to a total of six years on CREFC's Board and are all senior members in both their firms and the industry.
The goal of CREFC's BOG Sentiment Index is to gauge quarter-to-quarter shifts in market conditions for the CRE finance market and the outlook going forward. The Sentiment Index equally weights the responses to each question and then sums those weighted responses to create a single index.
Detailed results for each question for both the Sentiment Index and COVID-19 surveys can be found here.
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SOURCE CRE Finance Council