December 14, 2023
Katie Gremban, a Capital Markets Real Estate Advisor, delivered a comprehensive presentation on the state of the Investment Market during the 2023 Market Update hosted by CARW, NAIOP, and First American Bank. Her insights covered vital aspects of the economy, prevailing trends, significant transactions, and forward-looking forecasts for the 2024 market landscape.
During her presentation, Katie humorously noted the influence of Taylor Swift on this year’s economic momentum, eliciting laughter from the audience. She specifically highlighted the Federal Reserve’s efforts to stabilize inflation by maintaining interest rates.
The market experienced a fluctuating trajectory in 2023. Initially, interest rates hovered in the mid 5% range at the beginning of the year. However, by April, rates started to ascend, causing a momentary pause in the market, resulting in deals falling out of contract. By May, rates had surged to 6.75%. Notably, national and regional banks ceased lending activities by September, while community banks and credit unions continued to participate in the market.
Current trends in capital markets dealings reveal several influencing factors: a scarcity of available products, reduced loan-to-value ratios (LTVs), escalating capitalization rates (cap rates), and a substantial disparity between the perceived asset value by buyers and the price expectations of sellers.
Nationally, sales volumes witnessed a significant 53% year-over-year decline, with Wisconsin experiencing a 37% decrease and Milwaukee specifically facing a 28% downturn. Despite these reductions, the data suggests ongoing deal-making activity in the southeastern Wisconsin area, reminiscent of pre-pandemic levels.
Looking ahead to 2024, Gremban predicts that interest rates will persist at elevated levels, albeit showing a downward trend, while pricing discovery will occur as the bid-ask gap narrows. She anticipates continued challenges within the office sector, particularly for Class B/C assets, and suggests that cap rates will not revert to their previous lows, projecting only minimal shifts.
For more information on retail, office, and industrial market updates – see the link below: