Heightened Economic Uncertainty Stands to Weigh Heavily on CRE

Source: Economics Group of Wells Fargo Bank, N.A.Summary Macroeconomic Uncertainty Keeps the Pressure on CRE Valuations

  • Tightening credit conditions and a looming economic downturn could weigh heavily on commercial real estate (CRE).
  • Banks have significantly tightened CRE lending standards. Lenders turning more cautious could potentially have acute impacts for the CRE market.
  • In addition to limiting new CRE funding sources and investment, tightening credit conditions increase the likelihood the U.S. economy will experience a recession later this year. An economic downturn likely would weigh further on CRE fundamentals such as net absorption and new development, which would impact rent growth and valuations.
  • Delinquency rates remain low at present but are beginning to drift higher. As more CRE loans mature over the next few years, higher delinquency rates and an increase in distressed asset sales could be forthcoming.