Chris Powers is Founder and Executive Chairman of Fort Capital and host of the Fort Podcast
Editor’s Note: This guest post is an excerpt from the LightBox CRE Expert Predictions for 2024.
I think to some degree you just have to break the economy. We’re starting to see some of that. GDP was up in Q3, but the things that are seeing signs of breaking are those things that people don’t need as much. If you look at noncore items people don’t need as much, like second homes, high end dining, and luxury vacations. Those areas are starting to show weakness.
Office sector outlook
There is very little market for office right now and it’s a big deal that a lot of the country thinks they don’t have to go back to an office again. These are big assets that traditionally require a lot of money to capitalize and there is a lot of money in them and everyone is struggling to figure out what will happen to them. This will be going on for decades in terms of repositioning these buildings.
- If you look at REITs, you’ll see that property values are down 30% to 40%. Values will be down at least another 10% to 15% next year. While it will vary by asset class, with office having the most trouble, values next year may be down across the board until Q3 or Q4.
- Industrial has held up really nicely throughout all of this and I think industrial will be the leader in the recovery.
Before we see a return to normal activity, the industry will have to reboot mentally and get the engines going. There is also a lot of focus on working out loans and that is taking time away from traditional deal making.