Name: Sectors Up Close All real estate 'is hyperlocal' | REUTERS
Uploaded: 2026-01-26T17:17:03.000Z
Duration: 5 min 34 s
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The real estate market is in the political line of fire, but is it a good investment?

This is sectors up close and we're talking commercial real estate.

Participle clauses

President Trump weighed in on the real estate market last week, signing an executive order to restrict institutional investors from buying homes.

About 3% of single family rentals across the US are owned by institutional investors.

But the returns have been falling since many major American cities are oversupplied with apartments.

Xander Snyder is senior commercial real Estate State economist at First American.

Santa, firstly, what brought about this situation?

How did American cities get to a situation where there's a lot of oversupply?

Well, interestingly and somewhat paradoxically, part of the reason that a lot of these cities are at least near term oversupplied is because they were in such high demand several years ago during the pandemic.

People were looking for new space, cheaper places to live, and that shifted demand in the country.

And that combined with very, very low interest rates, meant that developers were going to respond to that demand by building a lot of new apartments.

Over several years we hit an all time or 60 year peak of apartment units under construction and now all of those apartments are being delivered to market.

So I say near term in part because I think that over time there will be demand in a lot of these cities to ultimately end up absorbing some of that new supply.

It's because these are desirable places to live and the financing environment allowed for it.

Construction starts are falling now, aren't they?

So you expecting demand in these cities to catch up with the supply?

A lot of the big major near term oversupplied metros still have fairly robust demand.

I mean, in terms of net absorption, which is just units being leased minus units being vacated, people still want to live in these places.

it takes time to absorb new supply, I mean, you can't deliver 500 units in one day and expect them all to be leased up in the same day.

It takes time, time for demand to meet supply and the demand still there.

So I think it's really a matter of time in a lot of these places for demand to fully catch back up and absorb that supply.

And because starts to fall in, we know that future supply is going to be more limited.

For investors interested in real estate, what will the impact be here of Fed rates coming down as they're expected to over the coming year?

It means, of course it's cheaper to construct.

But are you also expecting Improved mortgage affordability will allow more of these renters to buy and perhaps reduce demand.

I think on the commercial side you're right that short term rates which the Fed sets more directly impacts construction financing rates.

Because usually in the commercial world those are some sort of spread over SOFR secured overnight financing rate.

Whenever the Fed moves rates, that amount moves as well.

But for more fixed rate mortgages, longer term mortgages, a lot of the times the spread it's better to Compare to the 10 year yield or the 5 year yield, because oftentimes even though the note itself won't have a defined spread, the bank's determining if this is a good investment relative to the 10 year yield.

So while the Federal Reserve may well keep cutting rates this year, I think it's entirely possible that the long end of the yield curve does not follow all that much.

And a lot of people are saying well, the 10 year has been range bound between 4.4.5.

I think it's also likely or it's entirely possible rather than that the 10 year could go back up to 5% based on historical shapes of the yield curve, which I've done some analysis on.

But all of that to say I think it'll help in certain parts of the market.

But short term rate cuts won't necessarily make all financing cheaper for the commercial world.

Given the complex picture, where else should commercial real estate investors be looking?

Is it time to invest in office buildings?

If you look at the volume of office sales activity, sales transactions over the last year, in the fourth quarter and also in the third quarter, it's growing again.

What that means is that office prices have fallen enough to start attracting buyers back to the market.

That doesn't mean that all office buildings are good or all office buildings are bad.

But I like to say that you can make a 20% occupied building make money for you if you can buy it for a dollar.

And that's essentially what's going on going on in the office market.

Not that people are buying buildings for a dollar, but

that prices have adjusted enough to make more investment.

I think that's entirely possible in terms of the broader commercial real estate market.

I'd say it varies meaningfully by asset class.

But when you're beginning to approach an investment thesis, don't forget about the supply demand fundamentals of your metro.

Because ultimately how successful you are in raising rents in the near term and not having to offer concessions depends on the strength of the leasing market.

And then, of course, recall that real estate is local, hyperlocal.

So even if a market might be underperforming compared to the country, you might still have a neighborhood or a block that's doing very well where there's strong local demand.

I do think that since we're at the beginning of the next cycle, there are opportunities now if you're cautious and have diligent underwriting standards.

That was Andrew Snyder of First American.

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