Have we bottomed ?
As you all know the past year has been brutal in terms of job opportunities. I'm wondering whether Q3- will show signs of recovery. What are your thoughts and what sectors do you reckon are/will be hiring the most?
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I doubt we are at the bottom yet, but even if we are, hiring won’t restart until a year or so after the bottom.
My bets are:
Multi: plenty of merchant build supply needs to clear market to bottom. Will recalibrate values at a basis level.
Office: Won’t bottom until next recession (idk when that is) shifting labor landscape and allowing for stronger push back to office or hybrid.
Hotel: consumer likely tapped out will see downward trend in ADR.
Retail: idk
Industrial: idk
Generally, credit has pulled out of CRE in a big way. This is relatively recent still in terms of a normal cycle. I don’t think we will bottom until we see credit enter back into CRE in a meaningful way.
Industrial definitely still has legs, at least in my region, lots of areas are sub 5% vacancies with the only product on the market being last-gen or class C space. New, modern, Class A industrial is still in need.
We need a huge bond rally before we bottom. But the 10 year yield is rampaging higher.
Honestly, no. I think we're still somewhere in the first half of this new cycle. Someone on here said it best, we won't hit bottom until banks stop extending and pretending and let properties default. When that happens, then you'll see more realistic valuations when it comes time for under durress borrowers or lenders to sell. Office valuations seem to be much more in line with where they should be because it is facing an existential issue (not talking about true Class A). Multi owners are holding out because fundamentally, multi still has secular tailwinds. Issue was just that too many people misfinanced with too much leverage or aggressive underwriting.
Makes sense. So realistically we won't see any increase in CRE job opportunities until we get a distress momentum with a proper correction in values.
I’d still say no. Remember a lot of firms overhired due to the immense transaction volume in ‘21 but that was an anamoly because of cheap debt. So firms either (a) did layoffs and now will be apprehensive of adding new hires because of uncertaintly (b) they did not layoff and whenever volume picks up, they already have a team in place. From what I think, I doubt firms will expand their front-office transaction-related roles for the next 2-3 years, even if things pick up. They’ll hold out unless their lean team really can’t handle the volume. Best bet is people will just backfill vacant roles from people who left.
Rates went up so quickly that even deals put together fairly recently got much better financing terms than what's available now. I think there are a lot of zombie deals out there that have no immediate risk of default but that have no chance of refinancing when their current loan terms ends. They'll have to sell at a big loss or hand back the keys to the lender. But that will happen on a staggered basis over multiple years.
No. Agree with all the above. Spend the next few years figuring it out for yourself. These CRE firms pay will be $hit even when the cycle becomes favorable.
No. I know people have been complaining on WSO for a while now, but my area is just starting to feel it now. Banks aren't lending. Buyers can't make real offers.
Feels like it's just beginning, not that it's at the end.
Based on gut feel and the uncertainty around the Fed coupled with CRE’s trailing reaction to interest rates, I think it’s just beginning. Too tough to really say but I think this is going to be a slow burn.
Then summing it up gents: It's gonna be a massive struggle to find jobs in the near future.
Probably not true. Hiring will pick up once it's more clear where we're headed and the bid/ask narrows. Too many mixed opinions now and no one wants to sell for a low return or a loss when they aren't in distress and probably clipping management fees off their AUM. Once it's more clear which direction we're headed (regardless of that direction) there will be more opportunities. Capital doesn't sit on the sidelines for too long, eventually it needs to start finding ways to be placed.
So you disagree with all the above statements ?
Agreed, and a major part of knowing where we're headed is when interest rates pause, the Fed's continuous will-they/won't-they on rates isn't helping.
My hunch is that this cycle won't see such a bottom as normal cycles. That there will be distress but a lot of it being in tough assets and that their values will just fall back to where they should have been before the cheap debt frenzy instead of being a nasty sell off, and values of quality assets will have to reprice to be more in-line with normalcy and higher rates but nothing crazy. Then I think we have a couple years of letting the market rebalance itself for whatever normal rates and inflation we have going forward and sellers coming to terms that they aren't hitting a 20% IRR on stuff they bought 2021-23. Probably going to take some time for the market to find the value it really should be at given there still hasn't been a big catalyst to cause a typical crash and fundamentals seem to be holding up enough for people to hang on hoping for better days.
I definitely don't think we are at a bottom yet. There is just simply not much juice left to squeeze out of this stuff at today's prices without consumers tapping out. The only way we're at a bottom here is because values are going to stagnate for 3 years while everything settles, wages go up, etc leaving new room for rents to grow
We only bottom when we hit bingo.
GVA and S2 got to go!
People asking if this is the bottom = probably another 12+ months to go.
People asking if we’re in a new permanent recession and things will never go back to normal = the bottom was 3 months ago.
Monkeys voted this as the funniest comment, but its the most accurate one in my eyes lol.
Hah, I voted it as funny, but it's funny because it's true
Is this statement an amusing joke thats also true? Because this sounds pretty accurate
This might sound controversial, but the #1 driver in Commercial Real Estate is deal flow since most people depend on it for their livelihood. I would categorize deal flow into 2 primary drivers: Transactions (Acquisitions/Dispositions) and Development. Here are the primary issues which affect them (tldr: no reason to sell which causes large bid-ask spread, construction labor too expensive):
1) Construction Costs are too high. This is mainly driven by labor costs. I suspect when most of the ongoing projects are completed (assuming Bidenomics doesn't fund a bunch of public projects pre-maturely), labor costs will drop which will suddenly help development "pencil". If projects begin to pencil, the new supply will likely exert negative pressure on rents and will widen cap rates. In terms of the effect it will have on hiring, more development means that developers will need to hire more Development Managers, more Asset Managers will need to be hired to manage more market supply, more Property Managers needed to manage new buildings, Lenders (&D/E brokers) will be busy with financings and down the line I/S brokers will likely need to sell more Merchant Built buildings.
2) Cap Rates are too low. As other people have mentioned there are a lot of "zombie" properties out there that took on a relatively high level of debt and will not be able to be refinanced in today's environment. As long as owners can extend and pretend, there is limited reason for them to sell as they can wait out potentially better market economics. There is a scenario which exists where we experience a few more months of lower inflation, supply chains are fully fixed, pent-up demand is eliminated and excess cash in the market is eliminated as well (household debt levels and MoM inflation figures are looking promising). If that scenario does occur, interest rates may be on their way back down and we are very close to hitting the bottom right now. If the financial system hits a period of reckoning where lenders are stressed and "extend and pretend" no longer works, we should see a bunch of distressed product hitting the market and subsequent cap rate expansion.
Agree with most of what you said, but I just don't see rates coming back down. The Fed has been able to show the market has been resilient with such a massive hike in rates. They have no reason to cut. Not only do they have no reason to cut, they need to keep rates higher in case there is a real recession or credit crisis. They need to have the ability to cut rates in their back pocket. If they cut to early they risk having runaway inflation.
There is just too much liquidity in the market still. I read somewhere that only 10% of people are taking advantage of higher savings rate accounts. The remaining 90% are still in legacy accounts and are either not aware of the higher savings nor do they care.
Outside of office we haven't really started to feel pain yet.
Overall Market / Macro - nope
Multi - not a fucking chance, still too many syndicators left to implode
Office - closest since we've seen signs of real capitulation already but the floor is lower for dogshit product imo
Hotels - I'm concerned about coming demand downside, but less so in luxury segment
Industrial - not my area of expertise, but given long term leases I expect should ride out recession without much downside, outside of companies that fail of course
Retail - I expect some pain here, as the consumer begins to really suffer, but retail has been battered so long I don't know what to consider the bottom and there are so many segments here that have vastly different stories.
Would be great if they finally ripped the damn band aid off. The soft landing narrative is getting tiresome.
Agree with the above. There is still a long way to go, but I am starting to see signs of capitulation.
I am focused on the office space, so i can speak mostly to that side. Who foots the bill for leasing costs is a constant point of contention. I am seeing a lot more note sales being shopped and lenders are starting to guide sponsors towards testing the market rather than defaulting to "extend and pretend". We are getting past that point and reality is starting to set in. If these distressed properties and note sales actually transact, there will finally be some transparency in just how far valuations have fallen.
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