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Has Commercial Real Estate Hit a Plateau?

Source: NREIOnline
Source: NREIOnline

The Real Estate Roundtable, a public policy organization, polled senior commercial real estate executives’ expectations on the CRE market over the next 12 months in their third quarter Sentiment Index.

The quarterly survey is the commercial real estate industry’s most comprehensive measure of senior executives’ confidence in the real estate environment. Conducted by FPL Advisory Group on behalf of The Roundtable, it measures the views of CEOs, presidents, and other top executives regarding current conditions and the future outlook on three topics: (1) overall real estate conditions, (2) access to capital markets, and (3) real estate asset pricing.

Topline Findings

  • The Q3 Overall Index came in at 61; investors note the relative strength of the US economy and strong real estate fundamentals, though they show concern over a number of macroeconomic and geopolitical threats
  • The marketplace is characterized by an abundance of capital chasing a decreased amount of attractive investment opportunities; many note a sellers’ market as we head toward the latter stages of this real estate cycle
  • Most are looking for stable asset valuations over the coming year, though close attention remains on interest rates and a potential softening in real estate prices as a result of their movement
  • International capital continues to look for a home in US real estate due to uncertainty abroad; equity and debt capital remain widespread

National Real Estate Investor just released a recap of the survey online:

CRE Market Plateauing? New Sentiment Survey Shows This May Be the Case

A third quarter Sentiment Index just released by The Real Estate Roundtable, a public policy organization, shows that senior CRE executives’ expectations for the commercial real estate market over the next 12 months are becoming more moderate than they were a year ago.

The Roundtable’s Overall Sentiment Index, researched in July, came in at 61 on a scale of 1 to 100, where 100 would indicate that all survey respondents felt that current market conditions are “much better” than they were a year ago and will be “much better” in a year’s time. The Future Sentiment Index came in 11 points lower than in the third quarter of 2014, at 56.

In contrast, 56 percent feel that market conditions are “somewhat better” today than they were in the third quarter of 2014, 33 percent feel conditions are about the same as a year ago and 7 percent believe they are “much better.”

Nobody expects real estate market conditions to get much worse in the year ahead, but 17 percent of respondents do feel they will get “somewhat worse” by the third quarter of 2016.

When it comes to asset values, 45 percent of respondents expect them to stay the same over the next year. Thirty one percent think they may be “somewhat higher” in third quarter 2016 and 24 percent think they may become “somewhat lower.”

In comparison to last year, 80 percent of respondents feel that asset values are now “somewhat higher,” 14 percent believe they are “much higher” and 6 percent view asset values as being about the same as in the third quarter of 2014.

“I don’t think we will gain much in terms of pricing for real estate over the next 12 months, but I do believe that absent any significant shocks to the economy, we can maintain this pricing over the next 12 months—stability,” according to one of the respondents.

A majority of respondents (57 percent) believe that debt and equity capital will remain as readily available in 2016 as it is today. Twenty five percent expect availability of equity financing availability to get “somewhat better,” and 21 percent expect “somewhat better” availability of debt. Four percent feel there will be “much better” availability of equity, and 3 percent believe the same of debt capital.

But while a year ago only a negligible number of respondents expected debt availability to get “somewhat worse,” this year that figure rose to 19 percent. Another 14 percent believe equity availability will get “somewhat worse.”

The quarterly Sentiment Index research is conducted for The Roundtable by FPL Advisory Group, with survey respondents including real estate company CEOs, presidents and senior executives.