AXA’s Curlow sees continued stagnation as buyer-seller impasse persists

The transaction market remains stymied by a wide gap between buyers and sellers.

The global commercial real estate market has yet to come to terms with the impact of the most significant interest rate tightening cycle on record, Justin Curlow, global head of research and strategy at AXA IM Alts, told Real Estate Capital USA.

The transaction market continues to be at an impasse, with a wide gap between buyers and sellers and a similar disparity between lenders and borrowers. Additionally, valuations – which should be lower given the long period of rising interest rates – are still lagging, Curlow said.

“There is the maths, or the academics, around what pricing theoretically should be given the rate movements. Then there is the transaction market, which is perhaps moving in that direction but is not quite there yet. And then there are the valuers, who are another step behind,” Curlow said.

While significant distress has yet to emerge, Curlow noted the firm is starting to see more evidence of this on an asset-by-asset level.

“For lesser-quality assets, particularly in the US office market, we are seeing more evidence of things going south and lenders having to reconcile the reality of that,” Curlow said. “The process seems like it is early on and is something we likely will be following for a number of years. I would hope it provides opportunity for value-add or opportunistic buyers once the reality of the situation is acknowledged. But at the moment, there is a wide bid-ask spread stymying any sort of notable transaction volumes.”

Longer-term impact 

The Federal Reserve has raised interest rates by more than 500 basis points since March 2022, with other central banks following a similar strategy. But so far, the market has yet to see a significant impact.

“I still feel that this being the most significant tightening cycle on record will come with ramifications. I am surprised that it hasn’t happened yet, but this higher cost of capital is biting households, businesses and investors,” Curlow said. “Everyone is recalibrating, but ultimately this is likely to tip economies into a recession, and we will see central banks respond.”

It is difficult to pinpoint what will lead to a rebound on transaction activity. At the start of 2023, Curlow expected to see incoming data at this point demonstrating that things were slowing down.

“But the economy is proving resilient and is so far supporting property fundamentals,” Curlow added. “We are still anticipating rate cuts in the second half of next year, but the quantum of rate cuts is going to be half of what was anticipated at the beginning of the year.”

There is also the question of further significant distress in the banking sector. Still, banks and insurance companies are better capitalized than they were prior to the global financial crisis, Curlow noted, added there are concerns about the private equity market.


Curlow believes the current distressed cycle will be more compressed than in previous downturns.

“If you look at the UK valuation cycle and compare it the recent ones, it took six or seven months for the UK all-property index to drop 20 percent,” Curlow said. “It took 12 months post-GFC and 27 months in the late 1980s.”

The shift is partly because the UK has been proactive in marking down assets, with Curlow noting the European market has not seen the same level of decline. The US market has also not fully realized lower valuations, he added.

Curlow does not see the same amount of potential distress out there as there was prior to the GFC and notes investors are looking to get in early.

“I don’t think there’s any shortage of capital [managers], rubbing their hands, looking for opportunities despite the denominator impact. And I think that there’s probably going to limit to a certain extent, the returns achievable, and the amount of opportunity because I think people will pretty aggressively compete for distressed disposals and recapitalizations,” he added.