Piper Sandler & Co. has upgraded Newmark Group to overweight from neutral, noting that it could be a leading entity in the recovery of commercial real estate as capital markets and leasing might outperform expectations in 2024.

“We believe 2024 leasing and capital markets could surprise on the upside driven by optimism over an easing rate environment and steady progress of tenants competing for top tier space, which gives rise to bigger commissions,” Piper Sandler Managing Director Alexander Goldfarb wrote in an industry note provided to Bisnow.

Newmark should benefit from further loan portfolio sales as lenders reposition their outstanding exposure to recycle capital into more profitable areas, according to Goldfarb.

“Consequently, we see [Newmark] as a leading CRE recovery play, given its advisory business model,” he wrote.

Newmark stock ticked up about 4.6% on Wednesday morning. Compared with a year ago, its stock is up more than 34%.

Regarding the wider outlook for the economy and CRE, Goldfarb wrote that while last week's Fed news on potential 2024 rate cuts “released the animal spirits for REITs,” that didn't change the fundamentals.

“Thus we continue to favor industrials and retail heading into 4Q23 earnings, when managements provide guidance,” Goldfarb wrote.

“The subsequent comments by some Fed board members trying to temper the market's expectations jibe with our view that rate cuts aren't necessary, especially if the Fed wants to insure inflation is dead,” he added.

That said, real estate will price in the potential of lower rates, which should help heal the transaction market and encourage the housing market, he said. Office should also benefit as the potential for lower rates reduces risk premiums and eases refinancing.