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Capital Markets Report

prepared by Newmark Research
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Joseph D. Pasquarella, Senior Managing Director of Newmark Group, Inc., provided this Capital Markets Report prepared by Newmark Research.

Here are a few of the report’s top-level conclusions.

  • Economy. The U.S. economy continues to prove surprisingly resilient to rising rates.
    • Real gross domestic product grew at a 4.9% annual rate in the third quarter.
    • Labor markets remain extremely tight, with 1.5 jobs still available for every unemployed person. Wage growth remains at the highest levels since the late 1990s.
    • A broad range of metrics show inflation remains above target.
    • This combined with the continued strength of the economy provides the Federal Reserve with justification to maintain rates at their current level.
  • Debt Markets. CRE debt origination is down 48% year-over-year and 32% compared to pre-pandemic.
    • Originations are down sharply across property types and lending sectors.
    • The small and regional bank lending engine that has driven the CRE market in recent years is rapidly slowing with no clear replacement.
    • At the same time, the market is set to absorb $1.9 trillion in debt maturities in the 2023 to 2025 period.
    • Many properties are subject to maturing debt that will face significantly higher debt costs than when loans were originated leading to loans being underwater or nearly so.
  • Equity Markets. Investment sales declined 56% year-over-year in first three quarters of 2023 and 30% compared to the 2017 to 2019 average.
    • Sales declined year-over-year across property sectors in the third quarter of 2023 and in the year to date.
    • Investment has declined across capital groups year-to-date, but institutional investors have declined most dramatically – likely due to higher sensitivity to cost of capital.
  • Pricing and Returns. Transaction markets now show clear increases in transaction cap rates, belatedly following the public markets. Even so, both in the private and public markets, cap rates appear distinctly unattractive relative to the cost of debt capital.

Read the full Report