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LIVE UPDATES: Recession Fears And Everything Real Estate Needs To Know

Recession fears have loomed large for commercial real estate all year, and on July 28, the industry was dealt another blow: The U.S. logged two straight quarters of declining gross domestic product.

Some might say that's technically a recession, but many economists disagree and point to other fundamentals, like job growth, that seemingly indicate economic strength. Either way, tensions are running high in real estate, and a broader downturn could be on the horizon.

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Is a recession imminent, or is it already here? When will it hit, and how long will it likely last? How bad will it get? Which real estate asset classes will be most affected and which would persevere?

Bisnow is regularly speaking with economists and property experts to attempt to answer those questions, and we will keep this page updated as we publish new stories breaking down the recession risk.  

Last updated: Aug. 8, 2022, 4:35 p.m. ET.

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FDIC To Increase Scrutiny Of Banks' CRE Loans 

The Federal Deposit Insurance Corp. plans to increase its stress testing of banks that have a high concentration of commercial real estate loans. It cited uncertainties around the the future of work and shopping as “adding dimensions of risk” to property loans.

Read the full story here.

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'BEST RECESSION EVER!!!': Economists React To July Jobs Report On Twitter

The July Jobs Report from the U.S. Bureau of Labor Statistics blew away expectations. Nonfarm payroll employment rose by 528,000 jobs in July, bringing the unemployment rate down to a decades-low 3.5%. Many economists took the job growth as an indication the U.S. is not in a recession.

Read the full story here.

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Debt Funds Smell Opportunity As Banks Step Back From CRE Lending

Worsening economic forecasts and rising interest rates have pushed banks toward the sidelines in terms of CRE lending. But that doesn’t mean CRE players can’t get financing — alternative lenders like debt funds are stepping up to fill the gap.

Read the full story here.

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Recessionary Fears Bring Life Sciences Back Down To Earth After A Meteoric Rise

Investment sales of life sciences real estate are down 34% year-over-year in the first half of 2022. Rent growth and asset valuation are both also declining. Though economic slowdown may be contributing, experts say the drop isn’t concerning because the industry has been overheated. 

Though downturns are often particularly hazardous for secondary markets, experts predict emerging life sciences cities will be insulated by their low barriers to entry and growing labor pools.

Read the full story here.

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As Values Drop, Here’s How To Catch A Falling Knife Without Getting Cut 

As real estate values start to fall in the wake of rising interest rates and an economic slowdown, investors with cash to spend have opportunities.

But knowing when to buy in a falling market is one of the trickiest skills in real estate investing.

Bisnow spoke to six veteran investors about gauging when and how to buy as a downturn looms.

Read the full story here.

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PODCAST: Recession Fears And Where Global Uncertainty Is Putting Deals On Ice

On this episode of Bisnow Reports, Bisnow UK Editor Mike Phillips discusses how international real estate investors are behaving amid global uncertainty, where deals have been put on ice or stalled as a result of the market, and what it may take for the standoff between buyers and sellers to end. 

Read the full story here.

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SURVEY: What A Recession Means For CRE

Tell Bisnow about how recession fears are impacting your business.

Take the survey here.

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Soft Landing Or Deep Recession? Whatever Is On The Horizon Isn’t Like Any Other Downturn 

Nothing in history looks quite like this moment, making a path forward murky. But experts say if there is a recession, it will most likely be similar to the dot-com bust of 2001 and won’t hit the depths of the Global Financial Crisis of 2008. CRE is unlikely to face broad pain, economists said, but there would be some soft spots: Single-family homebuilders and UK property are more likely to struggle than industrial and U.S. assets, for example.

Read the full story here.

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Canceled Contracts Pile Up As Real Estate Buyers, Lenders Reckon With Rising Rates

As economic uncertainty and borrowing costs increase, commercial real estate deals are falling apart. Property pricing is down. Mortgage origination is down. Investment sales deal flow is down. Even hot asset classes like industrial are taking a hit as investors either lose confidence and pull out or decide to hold off in hopes of a better deal down the road.

“No one's immune,” Alliant Strategic Development co-founder Eddie Lorin said. “Everybody is getting repriced.”

Read the full story here.

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The World Bank Sounds The Stagflation Alarm Bell: What You Need To Know  

The World Bank began warning of a global recession in June. The red flags it identified were the economic toll of the Russia-Ukraine War, global supply chain problems, continued coronavirus-related lockdowns and price hikes on gas and food. It halved its global economic growth forecast to 2.9% this year. Bisnow broke down the prediction for stagflation that combines price inflation with weak economic growth and what it might mean for CRE.

Read the full story here.

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Driving With The Rearview Mirror: CRE Needs A New Roadmap For Recession Risks

Developers' and brokers' reliance on backward-looking data like historical leasing trends can cause trouble as economic pain looms. Mismatches in pricing expectations between buyers and sellers and a disparity between bankers’ forecasts and the goals of potential property buyers can be especially prevalent as fears of recession rise. Bisnow’s reporting offers tips on looking forward to get through the cycle.

Read the full story here.

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Broker Confidence Plummets On Interest Rates, Recession Fears

New York City brokers are worried about real estate’s outlook, according to the Real Estate Board of New York's confidence index. Confidence in the market’s direction plummeted from Q1 to Q2 and is back to levels seen in the most uncertain days of the pandemic. 

Read the full story here.

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CRE Investors Are Feeling Less Confident Than At Any Point Since April 2020

Brokers are lagging investors, who reported their confidence plummeted in Q1. The Commercial Real Estate Finance Council Board of Governors' Sentiment Index fell 23% from the end of 2021 to the end of Q1 2022, putting investor confidence around the same level as April 2020 when the pandemic was upending the world. 

Read the full story here.

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'Can't Stop, Won't Stop': Economists React To June Jobs Report On Twitter

Job growth is one of the main indicators pointing away from recession. The June Jobs Report from the Bureau of Labor Statistics showed employment rose by 372,000 jobs, keeping unemployment at 3.6%.

“The labor market is not even remotely suggesting recession,” one economist wrote, and the Economic Policy Institute said the labor and wage data indicated the Federal Reserve didn’t need to keep raising interest rates to moderate inflation.

Still, the Fed hiked rates another 0.75% three weeks later.

Read the full story here.

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The Asset Classes Poised To Thrive As CRE Enters Recession ‘Danger Zone’: Moody’s

In June, Moody’s Analytics put the chance of a recession beginning this year at 33% and said there was a 50% chance of a recession starting in 2023. It predicted office and retail would bear the brunt of a downturn while multifamily and industrial would hold up well.

Read the full story here.

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Nearly 20M SF Of Spec Lab Construction Is Available As Demand Is Set To Drop

Life sciences real estate has been one of the hottest tickets in town, but cracks are starting to show as the economy wobbles. The most notable is a drop in venture capital funding, which will limit expansion of life sciences startups. The timing could be brutal, as the development industry has raced to build up a pipeline of projects that could be left sitting empty if demand dries up. CBRE predicts 29.1M SF will be built in the next two years, and only 26% of it is pre-leased.

Read the full story here.

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Recession In 2022? U.S. Self-Storage Says Bring It On

In times of recession, some investors turn to self-storage as a safe bet, and the asset class is gearing up for an influx.

“Self-storage has proven over time to be recession-resistant, and if we're not already in a recession, we are certainly headed for one,” said NAI Horizon Executive Managing Director Denise Nunez, a self-storage specialist.

Read the full story here.

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Commercial Construction Starts, Plans Increase Despite Recession Warning Signs

Thus far, construction starts seem to be unaffected by rising interest rates. The Dodge Momentum Index found groundbreakings were up 4% month-over-month in May and nonresidential starts were 20% above the seasonally adjusted annual rate.

Read the full story here.

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'So Far, Nobody's Panicking': CRE Evaluating Strategies As Stocks Dive With Rest Of Market

The stock market officially became a bear market in June, and real estate equities took a hit along with the rest of the market. The FTSE Nareit All REITs index fell more than 21% from January to mid-June. Players in the commercial property industry said the shock to the market caused investors to rethink their strategies but that real estate fundamentals were still healthy, so they weren’t seeing any panic-driven decisions.

Read the full story here.

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Industrial Is On The Brink Of Overbuilding

So far, industrial’s fundamentals are staying strong, reflecting years of e-commerce sales growth. But if the music stops, it may find itself quickly in overbuilding territory. And there are reasons to be nervous — rapid inflation is expected to impact retail sales, and online sales growth is already slowing. Green Street is predicting e-commerce to become a significantly smaller driver of industrial demand and forecasts that occupancy will drop over the next three years.

Read the full story here.