A Window Opens, but for How Long? – April 1, 2024

Over the past 60 days, CBRE’s Christopher R. Ludeman has seen “a meaningful sentiment change” on the part of investors both domestic and cross-border. The thinking is now that assets on the market or coming to market “will have to meet the market to trade,” Ludeman, global president of capital markets, said in a video segment posted to CBRE’s website.  

Accordingly, investors are “ready to come off the sidelines and are actively looking to invest but at value price,” Ludeman told CBRE’s Darin Mellott, head of U.S. capital markets research. So core investors will consider core-plus opportunities, and core-plus buyers will look at value-add, while value-add buyers will look for even deeper discounts. 

The window of opportunity to make such investments may not be open for as long as some may believe, though. “I would say I’m a little more aggressive about my view going forward, and people think this window for really aggressive purchasing of assets [will] stay open for a long time,” said Ludeman. “I think people will look back at 2024 and early 2025 and say, ‘I wish I had been more aggressive in 2024. I wish I had been more aggressive in the early part of 2025,’ because I believe that window of real value investing will stay open for a shorter period of time.” 

Mitigating against activity ramping up this quarter is the matter of interest rates. At its March meeting, the Federal Reserve’s Federal Open Market Committee did as expected and held the line. However, Ludeman pointed out, some investors previously had expected reductions in the federal funds rate to begin as early as that March FOMC meeting, while it now seems likely that rate cuts will start in June or later. 

The result will be incremental increases of investor activity as the federal funds rate begins coming back down. However, Ludeman said, “the momentum and the sentiment is clearly changed” compared to the beginning of 2024. 

One manifestation of that change is a new perspective on the office sector. Given the sector’s uncertain outlook since the pandemic, investors have tended to put office pretty far down their list of priorities. Now, though, the thinking is that the office product coming up for sale at current pricing levels may represent “a generational buy,” said Ludeman. 

There’s another investment activity that has received short shrift in recent quarters, and that’s new development. Ludeman believes this will change.  

Although skeptics would say “there’s such an overhang of space” across product types, current research predicts that the new deliveries in multifamily and industrial will be absorbed this year and next. “And then there will be a real shortage of product, which will create growth opportunities that will last for two or three years,” Ludeman said. 

Therefore, for well-capitalized developers, acting now to secure entitlements, take control of sites and prepare to put a shovel in the ground for 2026 delivery “will probably be smart money,” said Ludeman. Looking at portfolio-level trades, Ludeman said, “We’ll see a few more of those. And there’s a belief growing that those will really be generational type opportunities as well.”