Optimism in the U.S. market for commercial real estate financing witnessed its second largest drop ever in the first quarter, triggered by President Donald Trump’s new tariff policies, a new survey found.
In a survey of CRE financing participants conducted from March 31 to April 7, the CRE Finance Council said Wednesday that optimism in the sector fell 30.5% since the fourth quarter. The quarterly decline is exceeded only by the onset of the Covid-19 pandemic at the start of 2020.
Eighty percent of those surveyed said they expected economic conditions to worsen over the next 12 months, versus just 12% saying so in the fourth quarter of 2024, according to the survey. Half of those surveyed said they expect worsening CRE market conditions over the next 12 months.
Six in 10 respondents pointed to increasing risk tied to the Trump administration’s trade policies and rising geopolitical tensions for their outlooks. Sixty percent of those surveyed post-‘Liberation Day’ said they were concerned about rising construction costs as a result of the new tariffs.
Just under 70% said they expected the office sector to suffer as a result of cancellations in federal government building leases by the Department of Government Efficiency.
“The dramatic drop in our Sentiment Index clearly signals concern, but beneath the headline numbers we see pockets of cautious optimism, particularly regarding how lower interest rates might finally break the transaction logjam that has persisted through much of 2024,” Lisa Pendergast, president and CEO of CREFC, commented in a press release.
“What makes this quarter’s survey particularly revealing is the stark contrast to last quarter’s record high sentiment, demonstrating how quickly market psychology can shift with changing economic policies,” she added.
Among the bright spots, eight in 10 respondents expected issuance of commercial mortgage-backed securities, or CMBS, to either hold steady or post a moderate decline despite the shifting market. This comes on the heels of a strong fourth quarter for CMBS dealmaking, the CREFC noted.
(Reporting by Matt Tracy; editing by Philippa Fletcher)
