Recovery time for commercial real estate?
U.S. indexes up, but off highs: Dow out front, up ~0.6%
Materials lead S&P 500 sectors gainers; Energy falls most
Euro STOXX 600 index rises ~1.2%
Dollar down; crude off >2%; gold up; bitcoin up ~3%
U.S. 10-Year Treasury yield rises to ~3.81%
Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com
RECOVERY TIME FOR COMMERCIAL REAL ESTATE?
Plenty of investors breathed a sigh of relief as the Federal Reserve kicked off its easing cycle with a 50 basis point rate cut last week - and investors in the battered commercial real estate sector have good reason, Wells Fargo economists say.
While not a magic bullet for all that ails the CRE sector faces, lower rates could mark a turn in the tide, Wells Fargo analysts said in a note, detailing some ways it could benefit.
First, lower interest rates will reduce the cost of capital, relieving pressure on real estate capitalization rates (cap rates).
"CRE capital flows, investor risk preferences, local market conditions and property-specific supply and demand dynamics all play a role (in cap rates), (but) the cost of capital is the keystone for many of these drivers," Wells Fargo says.
Many of the banks that drastically tightened lending standards on CRE underwriting are already starting to relax policy, Wells Fargo says, while other financiers like life insurance companies and investor groups may also be starting to move off the sidelines.
Second, property valuations appear to be steadying. MSCI's index tracking U.S. real estate investment trusts (REITS) has gained about 4% this year, picking up off all time lows touched in October 2023, as per LSEG data.
Lower interest rates will also help with the high levels of debt in the sector. Distressed debt sales in the CRE sector have been fairly low, despite close to $1.9 trillion of CRE debt scheduled to mature by the end of 2026, Wells Fargo says.
That's occurred since lenders have been fairly open to amending loans and pushing debt maturities out to later dates - and now, with rates coming down it will be easier for borrowers to refinance.
Finally, if the U.S. consumer remains resilient, aided by a Fed rate cutting cycle, demand for commercial properties such as retail, industrials and hotels should increase.
The market for office real estate, however, remains a challenge. The office commercial mortgage-backed security (CMBS) delinquency rate rose to 8.3% in July, up from the pre-pandemic low of 2.7%, as per Wells Fargo.
(Lisa Mattackal)
*****
FOR THURSDAY'S EARLIER LIVE MARKETS POSTS:
THURSDAY DATA JAMBOREE: JOBLESS CLAIMS, DURABLE GOODS, GDP, PENDING HOME SALES - CLICK HERE
NUCLEAR POWER COMPANIES GET JUMP-START ON CLEAN ENERGY DEMAND BETS - CLICK HERE
WALL STREET INDEXES RISE WITH CHIP BOOST - CLICK HERE
CRUDE FUTURES: NOT LOOKING SO WELL ON THE CHARTS - CLICK HERE
WHEN WILL CHINA UNLEASH ITS 'BIG BAZOOKA'? - CLICK HERE
LUXURY BENEFITING FROM CHINA STIMULUS, HEADWINDS REMAIN - CLICK HERE
UBS SEES ROOM FOR STRONGER NORWEGIAN CROWN - CLICK HERE
ECB OCTOBER CUT HANGS IN THE BALANCE - CLICK HERE
EUROPE'S CHINA-EXPOSED STOCKS TURBOCHARGED ON STIMULUS HOPES - CLICK HERE
CHINA GIVES MARKETS ANOTHER REASON TO CHEER - CLICK HERE
EUROPEAN FUTURES BOUNCE AS CHINA STIMULUS OPTIMISM PERSISTS - CLICK HERE
U.S. REITS https://tmsnrt.rs/4eHnNi9
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
