Commercial real-estate investors are ready to get back in the market, says PGIM

By Joy Wiltermuth

Institutional capital is looking to 'get off the sidelines and get back in,' said Soultana Reigle, head of U.S. equity at PGIM Real Estate

The tone in commercial real estate, outside of the office sector, has dramatically improved over the summer, prompting more investors to kick the tires on potential investments, according to Soultana Reigle, head of U.S. equity at PGIM Real Estate, which oversees a $58 billion investment platform.

That's a big change from recent years, which saw capital-markets activity briefly idled, funds' redemption requests pile up and sales volumes deteriorate.

To be sure, big problems with older, lower-quality office buildings remain, and the roughly $1 trillion wall of commercial real-estate debt maturing each year through 2027 has investors and regulators alike concerned.

But rents more broadly appear to be stabilizing, or even growing. And the sharp, recent drop in benchmark bond yields BX:TMUBMUSD10Y has helped ease refinancing risks for some borrowers, especially as the Federal Reserve looks set to cut interest rates later this month for the first time in four years.

"From a valuation perspective, what has been evident to us is that we are flattening out," Reigle told MarketWatch. That has prompted more institutional capital to "get off the sidelines and get back in," she said. "People are anxious about missing a window."

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Outside of the office sector, where Reigle sees prices as still at risk of drifting lower, returns now look flat to slightly positive, she said.

GreenStreet's most recent commercial property-price index for July showed no monthly change, but it has registered a 1.7% increase for its all-property category this year.

That group includes apartments, hotels, offices, industrial buildings, malls and other property types, which still were 20% below their March 2022 peak levels, according to GreenStreet. That compares with a 37% drop from peak levels for offices.

Reigle noted that "until people's leases roll and mature," office values could still have more room to drop, given that corporate tenants in buildings other than top-shelf properties largely remain in flux in terms of space requirements and remote-work policies.

Still, Reigle said PGIM's value-add strategy has been raising capital successfully, and the asset manager has been getting more inbound requests for meetings.

"Investors are in the due-diligence phase," she said - adding that while they may not be signing documents yet, they are getting ready. "That's ticked up significantly over the course of the summer."

The S&P 500's real-estate sector XX:SP500.60 has climbed 15.1% in the past three months, according to FactSet data, compared to the broader S&P 500 index's SPX 1.1% gain.

-Joy Wiltermuth

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09-09-24 0848ET

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