Company: SQFTP
Filing Date: 2025-03-31
Form Type: 10-K
Source: 0001437749-25-010185
Chunk: 1712

Company: Presidio Property Trust, Inc.
Filing Date: 2025-03-31
Form: 10-K
Item: Item 1A
Chunk 1712
---
%. 

      ● 
      As of November 2024, the Bloomberg consensus forecast survey placed the probability of a U.S. recession within the next 12 months at 25%; it was 30% in September. 

According to Nareit, the lingering public-private real estate valuation phenomenon has impeded significant property transaction activity. Despite reaching its crest two years ago, the spread between REIT implied and private appraisal cap rates has been stubbornly slow to close. Recent REIT performance, however, has made material progress in closing the gap. The long goodbye to the current valuation divergence may finally be reaching its end. Quarterly total return differences and cap rate spreads have a negative relationship, for example:

      ● 
      When REITs had the greatest degree of outperformance (+22.8%) in the fourth quarter of 2023, the cap rate spread plunged by 94 bps. 

      ● 
      When REITs experienced the greatest degree of underperformance (-19.5%) in the second quarter of 2022, the cap rate spread surged by 79 bps. 

      ● 
      When REITs outperformed (+16.5%) in the third quarter of 2024, the cap rate spread dropped to 69 bps, a level less than half its previous quarter’s value. 

The chart below displays occupancy rates for the four traditional property types from the fourth quarter of 2008 to the third quarter of 2024. In recent years, the retail sector has enjoyed a rising occupancy rate, but it appears to have plateaued. In contrast, occupancy rates for the apartment and industrial sectors have dropped off in the face of record amounts of new supply following record rent growth in the past few years. Office occupancy reflects a shifting and uncertain demand environment with the advent of more widespread remote work. As of the third quarter of 2024, CoStar occupancy rates for the retail, industrial, apartment, and office sectors were 95.9%, 93.4%, 92.1%, and 86.1%, respectively.

Occupancy rate trends will likely weigh on future property operational performance. They also underscore the need for realism in investment underwriting (1).

(1) Source: https://www.reit.com/news/blog/market-commentary/reit-cre-outlook-evolution-2025

      51

CREDIT MARKET ENVIRONMENT

Current market rates in February 2025 on fixed rate mortgages on homes ranged from