Environmental Due Diligence

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CRE Environment Due Diligence Volume Stable in Q1 as Fed Puts Rate Cuts on Hold

Dianne Crocker
May 9, 2024 2 mins

After Phase I ESA activity ended last year with a 20% decline compared to 2022, 2024 began with the first increase in three quarters. A notable shift in market sentiment has taken root as the Federal Reserve signaled that the expected interest rate cuts were on hold until inflation data was more encouraging.

For any environmental consultants eager to benchmark your own Q1 2024 activity against industry benchmarks, our latest CRE Market Snapshot for the Phase I ESA market highlights the latest trends and forecasts what you can expect over the near-term:

  • The LightBox Phase I ESA Activity Index rebounded from the 69.5 Q4 2023 low point to reach 77.0 in Q1 2024, just below 80.5 one year ago.
  • The high interest rate environment that dampened 2022 and 2023 CRE lending and investment is here to stay over the near term, given the Fed’s Q1 position that rate reductions are on hold pending greater confidence that inflation is approaching the 2% target.
  • U.S. Phase I ESA volume was down a modest 4% compared to Q1 2023 but was 11% above Q4 2023’s subdued year-end activity.
  • Dallas took the top seat away from Las Vegas as the fastest-growing market for Phase I ESAs in Q4, with an impressive Q1 YoY growth rate of 28%, followed by last quarter’s leader, Las Vegas with 21% growth and Atlanta with 15%.

LightBox Phase I Environmental Site Assessments Index (Base Q1 2021=100)

The Forecast is Moderately Promising

Looking ahead, the LightBox Phase I ESA Index could see a modest uptick in the remaining three quarters of the year based on positions announced over the past quarter by big investors like Blackstone and Goldman Sachs that they are ready to reinvigorate investment in U.S. commercial real estate. Also driving Phase I ESA activity this quarter is GSE (Government-Sponsored Enterprise) lending on multifamily, merger and acquisition activity, and brownfields redevelopment with local and state government agencies.

In an encouraging development, April’s Phase I ESA volume was 6% above April 2023 volume and 2% above March levels, bringing YTD volume for the first four months of 2024 to just 2% below the corresponding period of last year.

The LightBox CRE Market Snapshot Series, Q1 2024 – Focus on Phase I ESA Trends contains more detailed information and metrics on trends in Phase I ESA volume by year, quarter region, metro and for the LightBox25 Index.

For more information about this report series or the data, email Insights@LightBoxRE.com

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