Uncertain Times – 2023 Q2 Review

The commercial real estate market today is plagued by significant uncertainty which is leading to falling activity levels and property values throughout much of the U.S.  Many investors are on the sidelines waiting for the Fed’s quarterly interest rate hikes to cease, which would likely signal the bottom of the market and begin to spur renewed activity.  However, at this moment, recession remains a prevalent concern, high interest rates and increasing operating expenses are eating into cash flow, and bank failures are leading to tightened underwriting standards including lower LTVs and recourse requirements, further restricting transaction activity. Most commercial real estate experts are now predicting increasing distress (especially in the office sector) through at least the first half of 2024.

Successfully completing a sale transaction in this environment may require certain measures to counteract these negative factors. Options would include procuring buyers with strong banking relationships and financial statements; structuring creative financing; correcting offerings to keep pace with current-market economics; finding motivated sellers; and motivating brokers with attractive financial or other incentives. Attractive seller financing might possibly be the most productive option today in light of the financing issues detailed above.  With a strong down payment, this can also be an unexpectedly beneficial situation for many sellers.

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