CREFC Sentiment Index Falls to Three-Year Low as Rate Concerns Mount

Commercial real estate finance executives grew sharply more cautious in the third quarter, with the CRE Finance Council’s sentiment index falling to its lowest level in three years as concerns about borrowing costs spread across the industry.

The Board of Governors Sentiment Index declined 17.5% to 83.3 from 101.0 in the second quarter, CREFC said. The reading was below the survey’s fourth-quarter 2017 baseline of 100 and 34% below its record high of 126.6 in late 2024. All nine equally weighted core questions weakened.

Rates remained the clearest concern. Ninety-two percent of respondents expect mortgage and capitalization rates to negatively affect CRE finance businesses over the next year, up from 53% in the previous quarter. Economic pessimism also deepened: 62% expect the U.S. economy to worsen, compared with 24% previously.

The survey, conducted Sept. 21-28, captured executives adjusting to a 10-year Treasury yield near 5%. Seventy-eight percent expect the Treasury yield to finish 2026 at 5% or higher, suggesting limited anticipated relief for long-term financing costs.

Borrower demand expectations turned net negative for the first time since late 2022. Twenty-four percent anticipate stronger financing demand, while 35% expect weaker demand. Investor demand expectations were evenly divided, with 30% anticipating increases and 30% declines.

Most respondents, 65%, expect unchanged debt-market liquidity. However, the share predicting contraction rose to 24% from 5%. Expectations for property fundamentals also turned net negative, with 30% anticipating deterioration in occupancy, rents and net operating income.

“This is the most negative our board has been in three years,” CREFC Managing Director Raj Aidasani said.