The CRE Financial Council (CREFC), the industry association that exclusively represents the $5 trillion dollar multifamily and commercial real estate finance industry, announced their fourth quarter 2021 CREFC Board of Governors' (BOG) Sentiment Index. The index comprises the board members’ responses to 10 core questions on the state of the CRE finance market. The sentiment index was initiated in the fourth quarter of 2017, therefore it tracks responses pre-covid, during covid, and today as we continue to recover from the pandemic.
The index hit an all-time sentiment high of 119.2 in the second quarter of 2021 (100 equilibrium), overall sentiment dropped sharply for a second consecutive quarter in the fourth quarter of 2021 to 105.2. This represents a significant shift in the outlook for the U.S. economy in 2022.
The fourth quarter 2021 survey indicated only 27% of the board expects the economy to perform better, down from 67% in the third quarter of 2021. In fact, 35% of the board believes the economy will perform worse, up sharply from 9% the previous quarter.
Economic outlook significantly changed partially because of the BOG’s expectations for investor demand for CRE and multifamily equity over the next year. In the fourth quarter survey, 54% expect more demand for CRE assets, down from 82% in the third quarter of 2021 and 80% in the second quarter of 2021. Meanwhile, only 3% expect less demand. Overall, 62% of the board have a positive outlook over the next 12 months and only 5% hold an unfavorable view.
“Given the increases in COVID-19 infections late in 2021 as a result of the Omicron variant, as well as continued inflationary pressures, it was not entirely surprising to see a drop in overall sentiment this quarter,” said Lisa Pendergast, executive director of CREFC. “However, we are better equipped as a country and an industry to weather the Omicron storm than at any other point in the pandemic. And, while Omicron may delay the recovery in some sectors of commercial real estate, like office, demand for CRE assets remains strong as evidenced by the surge in CRE investing and lending, with both sectors hitting new highs in 2021 and more of the same expected in 2022.”
“We are paying close attention to the trends that concern our members the most and will continue to provide the most up-to-date analysis possible. As we continue down the path to recovery across the industry, I look forward to our board's continued insights and perspectives,” Pendergast added.
