#USA #New York #Economic Outlook #CRE Finance #Sentiment Index

CREFC's Significant Decline in Q1 2025 Sentiment Index

The CRE Finance Council (CREFC) has recently published its findings from the 1Q25 Board of Governors (BOG) Sentiment Index, capturing a striking shift in sentiment within the $6.2 trillion commercial and multifamily real estate finance sector. Conducted from March 31 to April 7, 2025, the survey coincided with President Trump's 'Liberation Day' tariffs announced on April 2, which significantly impacted the market's psychological landscape.

The most telling statistic revealed in this quarter’s Index is a 30.5% plunge, taking the index from 126.6 in 4Q24 to 87.9—the second-largest recorded drop to date, surpassed only by the initial onset of the COVID-19 pandemic in 1Q20. This downturn pushes the index below the crucial threshold of 100 for the first time since the pandemic's beginning, indicating a major sentiment shift towards pessimism especially influenced by new trade policies.

Key Highlights of the Sentiment Index

Economic Outlook Deteriorates

The economic outlook among stakeholders has turned significantly negative, with 80% anticipating worsened conditions over the next year—a stark contrast to just 12% in the previous quarter. Meanwhile, only 7% foresee improvement, down from 42%.

Federal Policy Concerns

Government actions are now viewed skeptically, with 59% of respondents expecting negative ramifications, an increase from a mere 2% last quarter. Positive expectations have dwindled to 11%, compared to 74% previously.

Mixed Sentiments on Rates

The sentiment towards potential changes in interest rates displayed a notable divide. With 30% of stakeholders seeing positive impacts and another 30% anticipating negatives, it seems the market is split on whether lower rates will offset the impending challenges ahead.

CRE Fundamentals and Transaction Activity Declines

Expectations regarding core commercial real estate fundamentals have sharply deteriorated, with 50% now fearing a downturn—up from 12% in the previous quarter. Transaction activity is also less optimistic, with only 35% predicting increased demand for transactions, a stark drop from 86% previously noted. Conversely, 20% believe demand will decrease, up from 0%.

Financing Demand and Market Liquidity

Financing demand remains positive overall, yet expectations plunged dramatically, with 48% anticipating increased demand, down from 91%. Liquidity within the market is casting a pall, as only 15% forecast improvements in conditions—a steep decline from 81% last quarter.

Overall Sentiment Shift

The overall sentiment within the industry has notably worsened, with 43% now expressing negative views compared to 0% last quarter, while only 22% maintain a positive stance, falling from 77%. This clearly indicates the market's growing anxieties.

Additional Insights

The survey highlights significant concerns about geopolitical tensions and trade disputes, with 59% categorizing these as top risks. Furthermore, there is anticipation of moderately negative impacts from federal government lease terminations.

On a potentially brighter note, 80% of industry players are optimistic about CMBS issuance volumes staying stable or noting a slight decline, despite overall market volatility following a promising initial quarter of the year.

Lisa Pendergast, the President and CEO of CREFC remarked, "The CRE finance industry finds itself at a genuine crossroads. This significant drop in our Sentiment Index reflects widespread concern, but we can also observe pockets of cautious optimism, particularly regarding how potentially lower rates may finally ease the transaction bottleneck that has persisted throughout much of 2024."

Overall, the findings from the 1Q25 Sentiment Index accentuate the importance of navigating through fluctuating economic policies and market conditions as stakeholders reassess their strategies moving forward.