US CRE Market Insights June 2023
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Article Type
Insights
Topic
Real Estate
Published
June 16, 2023
Read time
5 mins
Author
Aegon Asset Management
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  • The ongoing impact of rising interest rates, tighter lending conditions and economic uncertainty continues to weigh on transaction volume. There is growing concern that the extended lag in the full effect of higher interest rates could potentially push the economy towards a recession. While we believe, along with 61% of Blue Chip Economic Indicators forecasters, a recession is likely, we expect it will be mild.1

  • Performance disparities persist across property sectors, as industrials outperformed compared to other sectors and office properties continued to face pronounced challenges with lower returns. The market's path into 2023 was disrupted by tighter monetary policy, and ongoing price discovery exercises suggest that the full impact of repricing is yet to be realized. Investors should be prepared to navigate ongoing challenges in the office sector and uncertainties associated with economic growth.

  • The commercial real estate (CRE) debt market remained subdued in late May 2023 with slowing originations and widening spreads amid ongoing uncertainty. Borrowers are favoring shorter-term loans with interest-only options and flexible prepayment terms. Lenders are exercising selectivity and conservatism in their underwriting. Regional banking challenges are expected to further restrict credit availability, creating potential opportunities for non-bank lenders to play a more significant role in meeting financing demands.

 

Property Sector Outlook 

Top 50 metros*

 

Under Construction as % of Inventory

1Q 23 Vacancy Rate**

1Q 22 Vacancy Rate**

1Q 23 YoY Rent Growth**

1Q 22 YoY Rent Growth**

Aegon AM Sector Outlook

Apartment

6.11%

7.13%

5.22%

2.31%

12.72%

Cautious

Industrial

3.54%

4.16%

3.84%

10.52%

10.76%

Cautious

Office

1.60%

11.51%

10.72%

1.88%

2.85%

Most Cautious

Retail

0.61%

4.20%

4.51%

4.44%

4.45%

Cautious

 

*Top 50 by Metro Areas by Population; CoStar Realty Information Inc., Aegon Real Assets US; as of March 31, 2023.

**Equal Weighted Average

1Wolters Kluwer. Blue Chip Economic Indicators. May 10, 2023

Important disclosures

Author

Aegon Asset Management

We are active global investors. In a complex world we think and act across traditional boundaries. We organize our teams globally by asset class, to bring the breadth and depth of our investment and research capabilities together for clients across the world. 

US CRE Market Insights
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