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Goldman Sachs to restart investments in US commercial real estate

Goldman Sachs Asset Management (GSAM) has announced plans to resume actively investing in US commercial property this year, citing a belief that the market is bottoming out. The real estate head of GSAM, Jim Garman, expressed confidence in the market, pointing to a combination of factors such as lower interest rates and a perceived floor in prices set by buyers in the market. This decision comes as US office and commercial property prices have experienced a significant decline due to higher interest rates and soaring vacancy rates since the onset of the pandemic.

At the MIPIM property conference in Cannes, investors shared mixed opinions on the state of the US commercial property market. While some, like Brookfield Asset Management, described the US as the most oversupplied office market in the world, others, like GSAM and Schroders, saw buying opportunities in the current market conditions. Schroders, a British fund manager, is preparing to invest billions of dollars in US commercial property over time, with a focus on multi-family rental accommodation.

Despite the optimism expressed by some investors, concerns remain about the potential financial spillover from plunging real estate values. Regulators are closely monitoring commercial real estate exposures at banks, with a particular focus on potential losses from property loans. However, it is noted that banks today are in a better position to weather any potential losses compared to the 2007-09 global financial crisis, as they have higher capital buffers.

Executives at the MIPIM conference highlighted the resilience of certain sectors within commercial real estate, such as logistics and data centers, which have continued to perform well. There is also a noted polarization in values between high-quality sustainable offices and other types of commercial properties. This indicates that investors are increasingly interested in properties that offer long-term value and stability.

Overall, while the US commercial property market may still face challenges in the near term, there is a sense of cautious optimism among investors. The underlying strength of the US economy is seen as a positive factor that could support a rebound in the market over time. As investors continue to assess opportunities and risks in the market, it will be important to monitor how the sector evolves in response to changing economic conditions.

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