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  • Writer's pictureStacy Patrick

February Commercial Real Estate Newsletter




> AI is here: An overview of its potential to transform CRE


> Going down: Will Fed's expected interest-rate cuts temper the CRE crisis?


> CRE outlook: Winners and losers


 


AI is here: An overview of its potential to transform CRE


Artificial intelligence (AI) is often misunderstood, but don’t underestimate its problem-solving prowess. Experts say AI is in the top three technologies expected to have the greatest impact on real estate over the next three years.


In short, AI will make quick work of complex problems, reduce errors and raise throughput at levels never imagined in human history.


Net-zero buildings: AI can help us reach our sustainability goals and reduce emissions on a faster-than-imagined timeline. It can achieve energy optimization by integrating renewable energy, occupant behavior analysis, lifecycle analysis of building materials, energy forecasting and more.


Identify emerging markets: Sped-up research and data processing will make it easy to catch and interpret demographic shifts. With AI, developers can quickly identify which cities and neighborhoods have potential for lucrative opportunities for multi-family, industrial, hospitality and retail.


Close deals faster: Developers will be fully equipped to close at a dizzying rate, with rapid access to market and property information, ROI analysis, financing and underwriting. During the due diligence phase, full reports with data and insights can potentially be generated in moments, saving weeks of manual research and analysis.

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The transformative power of AI in real estate cannot be overstated. From streamlining complex problem-solving to propelling sustainability initiatives and revolutionizing market research, AI is poised to become an indispensable asset in the industry.



 



Going down: Will Fed's expected interest-rate cuts temper the CRE crisis?


In December, the Fed signaled a likely end to its strategy to ward off inflation, with lower interest rates coming in 2024.


The higher interest rates over the past two years have hampered the CRE industry, slamming the brakes on new developments and creating barriers to refinancing. Will the Federal Reserve’s intention to cut interest rates turn the tides?


Early enthusiasm: So far, the CRE industry is anticipating more favorable market conditions in 2024. As equity investors show early enthusiasm for the move, experts expect a gradual increase in transactions.


Ease of borrowing: The recent decline in 10-year U.S. Treasury yields has led to an immediate impact on refinancing for sponsors. This shift allows sponsors to borrow more, as the lower yields open up opportunities, enabling them to cover gaps in financing that were previously restricted. This will fuel a greater demand for borrowing.

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Pricing gap: Before commercial real estate can take off again, a gap remains between buyers and sellers in terms of pricing expectations. Though ongoing negotiations will pump the brakes on progress, seeing relief from interest rates should grease the gears.



 



CRE outlook: Winners and losers

  • Retail: Neighborhood retail dominates while malls underperform.

  • Industrial: Cooling, but bolstered by reshoring efforts.

  • Office: B and C offices face obsolescence as vacancies reach 19%.

  • Multi-family: Interest rates will continue to fuel demand for rentals (for now).

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Source: JP Morgan



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