Mid-year updates and forecasts for the apartment and CRE markets uniformly note the improved economic conditions compared to the start of the year, but forecasts for rent growth and capital markets are diverging. Under one scenario, a recession in late 2023/early 2024 will prompt an interest rate reduction that could stimulate CRE capital markets, but under an alternative scenario, we are spared from a recession but deal with a longer period of elevated interest rates and inflation. Regardless of the ultimate outcome, interest rates are expected to remain high for at least 6 months, and the potential for property distress has not gone away.

Sources discussed in this episode:

Gray Capital: “CPI Rent Growth Contradicts Market Reality” - https://www.graycapitalllc.com/rent-report/

GlobeSt: “WeWork Says It is at Risk for Bankruptcy. Has Co-Working Died?” - https://www.globest.com/2023/08/09/wework-says-it-is-at-risk-for-bankruptcy-has-co-working-died/

National Bureau of Economic Research: “Converting Brown Offices to Green Apartments” - https://www.nber.org/system/files/working_papers/w31530/w31530.pdf

TheRealDeal: “Office-to-resi conversions are financially feasible, but just barely: report” - https://therealdeal.com/new-york/2023/08/08/report-identifies-nyc-offices-ripe-for-resi-conversion/

CBRE: “Midyear Global Real Estate Outlook 2023” - https://www.cbre.com/insights/books/midyear-global-real-estate-market-outlook-2023/economic-outlook

RealPage: “As Annual Rent Growth Slips Below 1%, How Much Further Could Rents Cool?” - https://www.realpage.com/analytics/july-2023-apartment-market-update/

Institutional Property Advisors: “Midyear Multifamily Outlook” - https://www.institutionalpropertyadvisors.com/research/special-report/2023/08/ipa-midyear-multifamily-outlook-special-report

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