Optimism Persists in CRE Investment Despite Interest Rate Pressures
Despite ongoing challenges posed by elevated interest rates, commercial real estate (CRE) investors remain optimistic about the market’s trajectory. Investment sentiment continues to trend positively, supported by strong economic fundamentals.
Economic Strength Fuels Investment Momentum
While the pace of anticipated interest rate cuts has been slower than expected, CRE investment is projected to grow. Forecasts indicate an 8% increase in investment volume for 2025, driven by resilient economic conditions that are fostering renewed activity. Investors and lenders acknowledge headwinds, such as the 10-year Treasury yield likely staying above 4% due to persistent budget deficits, stimulative fiscal policies, and inflation concerns. However, the underlying strength of the economy is reinforcing investor confidence.
Investors Actively Seeking New Opportunities
Seventy percent of investors plan to expand their portfolios this year, with nearly 30% maintaining an aggressive acquisition strategy. Favorable asset pricing remains the primary driver behind this increased buying interest. Although there is a growing awareness that interest rates may stay elevated longer than initially expected, investor enthusiasm has not waned.
Helm Ventures has observed consistent bidder activity and improving real estate fundamentals, indicating a stable investment environment.
Value-Add Strategies Lead Investor Preferences
Across all regions, value-add investments emerged as the preferred strategy, significantly outpacing core-plus investments. This approach reflects investors’ focus on maximizing returns while mitigating risks through strategic operational enhancements. The ongoing repricing of assets and strengthening market fundamentals further support this trend.
Multifamily and Industrial Dominate Investment Targets
Multifamily and industrial & logistics properties remain the most sought-after asset classes. Despite record new supply, the multifamily sector continues to perform well, as high mortgage rates deter homeownership and sustain rental demand. The survey found that 72% of investors favor multifamily assets, 37% are targeting industrial & logistics, and 27% are considering retail investments.
Mixed Sentiment on Office Sector
Investor perspectives on the office market vary. While some regions still consider office spaces among their top preferences, many investors have largely shifted away from the sector. However, prime office leasing activity has seen a resurgence in major cities, with certain markets leading the way. Additionally, some cities are witnessing renewed demand, largely fueled by AI companies and corporate return-to-office initiatives.
Alternative Investment Strategies Evolve
Investors continue to explore alternative asset investments, particularly in self-storage and industrial outdoor storage. However, less than half of investors expressed strong interest in alternative assets this year, instead prioritizing repriced opportunities in core property sectors. Notably, data centers have transitioned from an alternative asset class to a mainstream investment category, ranking as the sixth most preferred property type among investors.
Interest Rate Volatility Remains a Key Challenge
Despite overall optimism, elevated and unpredictable long-term interest rates remain the primary concern for investors in 2024 and beyond. As markets adjust to persistent economic pressures, investors are strategically positioning themselves to capitalize on favorable pricing and evolving market dynamics while mitigating risk exposure.
As the CRE landscape continues to evolve, proactive investment strategies and adaptability will be crucial for navigating an environment shaped by shifting economic forces and market conditions. Helm Ventures remains committed to helping investors optimize their real estate strategies in this dynamic market.