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TREPP survey: Office sector will see most delinquencies

The survey focused on macroeconomic conditions like inflation and interest rate hikes

Trepp, a proptech company that provides data, insights and technology solutions to the finance, commercial real estate (CRE) and banking markets, today released its annual CRE sentiment survey results. According to a press release, the survey, which focused on macroeconomic conditions like inflation and interest rate hikes, shows that most respondents think CRE will be able to avoid the worst of the “upcoming economic headwinds.”

Key findings of the survey include expectations for the office sector to witness an increase in distress until the end of 2022 (70% of people agree with this), CRE/CMBS worsening in the next six months (83%), being in the office for at least three days a week (70%), and multifamily having the most transaction activity within the next six months (58%).

Between July 13 and Aug. 1, 2022, the TreppWire Podcast team conducted a poll with more than 20,000 listeners, clients and blog readers to gauge their sentiment.

The survey revealed rising concerns about the negative impact of current economic conditions on businesses for the next few months. Many respondents believe a recession is likely to happen toward the end of 2022 (25% of people voted for this) or in 2023 (almost 60%). 

With regards to CRE, respondents felt more hopeful about leasing than sales. More than 50% of them believe CRE fundamentals will “somewhat” worsen in the next six months. Almost 48% the participants agree that post midterm elections, policies and regulations (in other words, the Community Reinvestment Act, ESG) will not affect CRE, while 22% said it would affect CRE negatively.

Almost 53% of the survey respondents expect their CMBS issuance to “muddle along” by the end of 2022 and 34% expect it to fall below 2021 levels.

“Not surprisingly, inflation, higher interest rates, and supply chain constraints were the biggest macro concerns in the survey; we polled the market to gauge how these conditions would affect the CRE market, and the businesses within that landscape,” said Martha Coacher, Trepp’s chief marketing officer.

Sixty-three percent of the respondents said the high interest rates will negatively impact their businesses, while an equal percentage of people said it would have “little to no impact” and a “positive impact.”

Moreover, more than 80% of respondents feel CRE and CMBS delinquencies will worsen in the next six months, with inflation and high interest rates being the top concerns.

Manus Clancy, senior managing director at Trepp, admits that using individual responses to build a bigger narrative comes with risks but based on his observations, this survey has shown that businesses are fairly confident about overcoming an “impending storm” despite the present economic climate.

This report is the second of its kind and asked participants to answer questions about the economy, regulation, CRE fundamentals, and CMBS distress. 

Half the respondents were CRE practitioners and the other half were people working in banks, finance companies and academia. The job functions of the participants include managers, brokers, commercial mortgage-backed securities (CMBS) and CRE investors, lenders, property owners, and risk managers, the press release lists.

In May, Trepp released the second edition of the Quarterly Data Review (QDR), which is a recap of CRE finance markets activity in Q1 of 2022. It focused on post-COVID recovery of properties and the changing economy with rising interest rates in CRE, and provided an insight into the “widening” in the CMBS market with the Russian invasion of Ukraine.

In other recent proptech news, Stoa secured another $100M from Cantor Fitzgerald, bringing its total equity and debt to approximately $300 million. Meanwhile, more proptech companies are adopting floor plan technology and 3D tours for housing properties.

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