Recent trends in Commercial Real Estate (CRE) present challenges as the industry navigates uncertainties. The fourth quarter of 2023, typically robust for CRE investment, recorded a significant downturn, with transactions totaling $89.5 billion – marking the lowest point of the year, and a year-over-year decline of -41%. Major metros experienced a 37% slide, while non-major metros were down by 42%. Property types such as multifamily, industrials, hotels, offices, retail, and development sites saw declines ranging from 27% to 50%. Seniors housing and care, however, showed resilience with a 9% increase.

Key Economic Data: MSCI’s report highlights a challenging landscape in Q4 2023, influenced by comparisons to the stronger performance of 2022 and the record-setting 2021. Factors include falling property valuations, rising cap rates (up by 50 to 60 bps for major property sectors), and widening bid-ask gaps, contributing to poor price discovery.

Key Insight from Evergreen Capital: Evergreen Capital acknowledges the complexities in the CRE market but emphasizes the potential for improvement in 2024, particularly with anticipated Federal Reserve interest rate drops. The current disconnect between buyers and sellers, resulting in bid-ask gaps, is seen as a temporary challenge. Evergreen suggests that investors remain vigilant and strategic, considering the broader macroeconomic landscape and the potential impact of interest rate adjustments in the coming months. While challenges persist, opportunities for well-informed investors may emerge as the market undergoes adjustments in 2024.