Episode 4: Uncovering cracks in investor confidence

Michael: Now we get to talk with Dianne Crocker, who is LightBox’s Principal Analyst. And, Dianne, so much has changed in commercial real estate in 2022. And as the year closes and everyone starts to, you know, turn an eye towards 2023, what are you hearing from your clients?

Dianne: You know, that’s really the understatement of the year, right? So much has changed in just one year. You know, what a difference, and I think across all of LightBox’s client segments, whether it’s lenders or brokers or appraisers, investors, environmental due diligence professionals, I’m really kind of hearing a similar refrain, which is essentially that there’s a tapping of the breaks after a very busy first half of the year.

You know, lenders have pulled back or even halted their loan originations. Property listings for sale are down, the buyer pool has thinned, environmental consultants I’m talking to aren’t seeing that kind of typical year-end rush for deals that they typically do, and many projects are kind of stopping and starting, and buyers now are even further apart on pricing, certainly than they were in the first half of the year. And it’s really the fed’s monetary tightening that’s at the root of this dramatic change in market sentiment that we saw in LightBox’s fall investor sentiment survey. That survey really kind of revealed the first cracks in the foundation of market confidence, and it was a market change in what we had seen in previous surveys. So, you know, I think, Michael, the reality is that as we’ve seen in prior periods of market uncertainty, you know what happens, you move to the sidelines, and that’s exactly what clients are seeing across the board.

Michael: And given the rather somber headlines about inflation and possible recession, what are you most optimistic about in the near term? And also what sort of things do you still worry about?

Dianne: There are somber headlines, right? You know, every day we see a new headline about the R-word and recession and, you know, is it here? How long and deep is it? Is it gonna run? You know, I think what I’m most optimistic about is that the fundamentals in most asset classes are still relatively positive. The slowdown isn’t because there’s anything inherently wrong with the market. It’s that the dynamics that we’ve known and trusted, and had confidence in for so long are starting to shift. So, I think what I’m most optimistic about is that there’s demand for commercial real estate. There’s interest in placing deals, especially in industrial and multi-family.

You know, I think in the more dicey sectors of retail and office, you know, those asset classes are going through a period of evolution, and that evolution is going to create opportunities for properties to be repurposed to better meet the needs of today’s market. So, you know, I think if I were a betting person, Michael, I would say the early part of the year will probably be a little slow out of the gate, and then as we get more clarity, you know, we’ll start to see money moving back on the field. I think it’s clear that 2023 is going to bring a market reset, a recalibration, a readjustment to the new market conditions. I think certainly there’ll be a period of reckoning for owners of properties that aren’t competitive post-COVID, especially in office, but I think we’re gonna see some pretty exciting opportunities. And of course, with so much uncertainty out there, we have a lot of things to watch in the New Year.