Liquidity gridlock worsens in US commercial real estate sector.



The liquidity gridlock in the US commercial real estate (CRE) sector is worsening, according to a recent report from Moody's Investors Service. The report found that transaction volume in the CRE market fell by 25% in the first half of 2023, compared to the same period in 2022.

This decline in transaction volume is due to a number of factors, including rising interest rates, economic uncertainty, and a lack of available capital. As a result of the liquidity gridlock, many CRE owners are finding it difficult to sell their properties or refinance their debt.

What is liquidity gridlock?

Liquidity gridlock is a condition in which there is a lack of buyers or sellers for a particular asset class. In the CRE sector, liquidity gridlock is being caused by a number of factors, including:Rising interest rates: As interest rates rise, it becomes more expensive for investors to borrow money to purchase CRE properties. This is making it more difficult for buyers to find financing for their deals.
Economic uncertainty: The current economic climate is making investors more cautious about investing in CRE properties. This is because investors are concerned about the potential for a recession, which could lead to a decline in property values.
Lack of available capital: There is a lack of available capital in the CRE market, as many investors are on the sidelines due to the rising interest rates and economic uncertainty. This is making it difficult for CRE owners to find buyers for their properties.

Impact of liquidity gridlock on CRE owners

The liquidity gridlock is having a number of negative impacts on CRE owners, including:Difficulty selling properties: CRE owners are finding it increasingly difficult to sell their properties due to the lack of buyers. This is leading to a backlog of unsold properties in the CRE market.
Refinancing challenges: CRE owners are also finding it difficult to refinance their debt due to the rising interest rates. This is because lenders are more reluctant to lend money to CRE borrowers, as they are concerned about the potential for a recession.
Lower property values: The liquidity gridlock is also putting downward pressure on property values. This is because the lack of buyers is making it difficult for sellers to get their asking prices.

Outlook for the CRE sector

The outlook for the CRE sector is uncertain. The liquidity gridlock is expected to persist in the near term, as rising interest rates and economic uncertainty are likely to continue. However, there is some hope that the gridlock will ease in the longer term, as the economy recovers and investors become more confident.


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