The CRE Finance Council (CREFC), the industry association that exclusively represents the $5.0 trillion commercial and multifamily real estate finance industry, announced the results of its Fourth-Quarter 2021 CREFC Board of Governors’ (BOG) Sentiment Index. CREFC’s quarterly Sentiment Index is derived from the Board’s responses to 10 core questions on the state of the CRE finance market. The Sentiment Index was initiated in the fourth quarter of 2017 and thus tracks markets pre-COVID, during COVID, and today as we continue to recover from the worst of the pandemic’s impact.
After the Index hit its all-time sentiment high of 119.2 in 2Q 2021 (100 is equilibrium), overall sentiment dropped sharply for the second consecutive quarter in 4Q 2021 to 105.2.
The primary driver for the change was a meaningful shift in the outlook for the U.S. economy in 2022. The 4Q 2021 survey indicated only 27% of the Board expects the economy to perform better, down from 67% in 3Q 2021. In addition, 35% of the Board expects the economy to perform worse, up sharply from only 9% in 3Q 2021.
CREFC Board of Governors Sentiment Index
A secondary component for the change was the BOG’s expectations for investor demand for CRE and multifamily equity over the next year. The 4Q 2021 survey indicated 54% expect more demand for CRE assets, down from 82% in 3Q 2021 and 80% in 2Q 2021. To the good, as with the prior quarter, only 3% expect less demand. Sentiment for all CRE finance businesses moderated from the preceding quarter. Still, it remained strong, with 62% of the Board having a positive outlook over the next 12 months and only 5% holding 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.”
