Profimex Market Review Update – October 1, 2020
Low Interest Rates Still Aren’t Moving the Needle for CRE Buyers
According to Real Capital Analytics, the fed’s decision to keep interest rates at an historic low is not sufficient to stimulate the commercial real estate market. While low interest rates would normally result in an increase of real estate transactions this is not the case today. The reasons are that despite the 10-year US Treasury averaging less than 1%, commercial mortgage rates continue to average 3.8% and barely move. Furthermore, lenders are more cautious, where even the most aggressive lenders offer only conservative LTVs. Jim Costello, senior vice president of Real Capital Analytics, says that lenders’ lack of appetite for commercial assets has impacted price discovery, further deterring transaction volumes. This environment presents excellent debt opportunities for non-traditional lenders, such as Blackstone, who has recently raised a $8B debt fund.
Is Coworking at Risk Or Not?
Regardless of WeWork’s difficulties, the coworking sector at large seemed to present a sound business model and its operators became a major tenants for offices spaces globally. However, with COVID-19 and the resulting social distancing regulations and preferences, the business model is again open for debate. Opponents claim that “the pandemic has precipitated a meaningful pullback in demand for this month-to-month space as tenants revert to the rent-free work from home alternative. Any longer-term contraction in coworking catalyzed by the pandemic could further disrupt certain office markets [particularly New York City], which had become dependent on growth in this space.” On the contrary, coworking spaces could see more demand coming from companies, looking for ways to reduce office costs and increase employee flexibility by offering suburban satellite office space.