RER Quarterly Sentiment Index – The Real Estate Roundtable

CRE Executives Express Tempered Optimism Despite High Interest Rates and Tight Liquidity

Posted on May 23, 2024May 24, 2024 by Abigail Grenadier

(WASHINGTON, D.C.) — Commercial real estate executives expressed tempered optimism about property markets in The Real Estate Roundtable’s Q2 2024 Sentiment Index as high interest rates and liquidity challenges linger. The Q2 Sentiment Index registered the same overall score of 61 from the previous quarter as uncertainty persists about future asset values and availability of capital.

The Roundtable’s Current Sentiment Index registered 55, a 2-point increase over Q1 2024. The Future Index posted a score of 66 points, a decrease of 4 points from the previous quarter. Any score over 50 is viewed as positive. The Overall Index this quarter of 61—a measure of senior executives’ confidence and expectations about the commercial real estate market environment—is scored on a scale of 1 to 100 by averaging the scores of the Current and Future Indices.

The Q2 Sentiment Index topline findings also include:

Evolving market trends continue to shape the real estate landscape. A majority (66%) of Q2 survey participants expect general market conditions to show improvement one year from now. Additionally, 45% of respondents said conditions are better now compared to this time last year. Only 11% of Q2 participants expect general market conditions to be somewhat worse in a year, a slight increase from 6% in Q1.

Class B office properties are facing ongoing challenges, attributed to an ongoing “flight to quality.” Industrial and multifamily sectors show tempered growth, yet their underlying fundamentals remain robust. Retail sectors are healthy, propelled by consumer spending, while interest in data centers continues to ascend.

A significant 75% of Q2 survey participants expressed optimism that asset values will be higher (44%) or the same (31%) one year from now, indicating some semblance of expected stability.

The real estate capital markets landscape remains challenging. For the current quarter, 65% believe the availability of equity capital will improve in one year, while 64% said the availability of debt capital will improve in one year. The 36% of participants who said the availability of debt capital would be worse in one year is an increase from 24% in Q1 who voiced the same expectation.

Regarding sentiment on the availability of equity capital, 65% of survey respondents expect conditions to improve, compared to 26% who stated that availability of equity capital was better a year ago.

Some sample responses from participants in the Sentiment Index’s Q2 survey include:

“Real estate fundamentals are shaping up to be very strong in one to two years. Companies that have a long-term perspective and can be patient will benefit from strong employment growth, demographic shifts, and stable occupancies.”

“The mom-and-pop investors who own class B office are hurting the most. The institutional investors are diversified, so they are faring better.”

“Stability in asset values isn’t just about reaching pre-2022 levels; it’s about establishing a new norm based on sustainable growth.”

Data for the Q2 survey was gathered by Chicago-based Ferguson Partners on The Roundtable’s behalf in April. See the full Q2 report.

The Real Estate Roundtable brings together leaders of the nation’s top publicly-held and privately-owned real estate ownership, development, lending and management firms with the leaders of major national real estate trade associations to jointly address key national policy issues relating to real estate and the overall economy.

Real Estate Leaders Report Tighter Liquidity and Difficult Price Discovery

Posted on June 10, 2023October 27, 2023 by Trey Jackson

The Real Estate Roundtable’s Q2 2023 Sentiment Index dropped to an overall score of 41, three points lower than the previous quarter. Commercial real estate executives noted how remote work, high interest rates, operating cost escalations, and difficult price discovery has led to significant uncertainty in the post-pandemic office sector and reduced liquidity for nearly all commercial real estate asset classes.

Stress in Office Sector Threatens Cities, Jobs

Industry leaders also reported relatively healthy Q2 demand for industrial, multifamily, and strip center retail assets. Solid rental growth in multifamily, senior, student, and assisted living sectors was another positive trend reported by sentiment survey participants. (See entire Q2 report.)
Roundtable President and CEO Jeffrey DeBoer, below, said, “The commercial real estate market is at the center of a major transition. Maturing office loans in particular face a new environment of higher operating and financing costs, much tighter bank lending requirements, and uncertainty in business space needs.”

“However, while there is relatively good current news from non-office CRE sectors, the combination of reduced liquidity, increased costs, and post-pandemic business uncertainty threatens to spread to these other sectors as well—and potentially cause great damage to communities, jobs, and the economy. Federal financial institution regulators must act quickly to provide greater supervisory flexibility—as they did in 2009, 2020, and 2022—to allow lenders and borrowers to responsibly restructure the large amount of maturing commercial real estate loans.”
“Businesses and individuals need more time to transition their space needs to the post-pandemic economy. Greater certainty in demand will allow commercial real estate markets, particularly the office sector, to stabilize and revert to its dominant position as the source for local budget revenue. In addition to regulatory flexibility, positive public and private action to encourage in-person, return-to-work policies is needed, where appropriate. As some buildings will need to be reimagined entirely, policy reforms are needed to encourage those buildings to convert to other uses such as housing,” DeBoer added.
The Roundtable’s Sentiment Index—a measure of senior executives’ confidence and expectations about the commercial real estate market environment—is scored on a scale of 1 to 100 by averaging the scores of Current and Future Sentiment Indices. Any score over 50 is viewed as positive.

Topline Findings

The Q2 Sentiment Index topline findings include:
- The Q2 2023 Real Estate Roundtable Sentiment Index registered an overall score of 41, a decrease of three points from the previous quarter. The Current Index registered 27, a four-point decrease from Q1 2023, and the Future Index posted a score of 55 points, a decrease of three points from the previous quarter.
- Participants noted the continued disparity between asset classes as well as within them. On one hand, rental demand continues to hold up in the multifamily and industrial sectors. Hotel and retail markets are also largely performing well and niche asset classes continue to generate interest and attract capital. On the other hand, while Class A offices remain desirable, the rest of the office industry is struggling to reposition itself.
- Similar to last quarter, 93% of survey participants believe that asset values have repriced to the downside vs. last year. However, limited trades in 2023 are making it difficult to gauge the market. Survey respondents continue to observe wide disparities in bid-ask spreads.
- The availability of capital, both debt and equity, continues to be a pressing topic. Regarding the availability of debt and equity, 93% and 75% of survey participants, respectively, believe that today’s conditions are more difficult than a year ago. While the cost of capital has universally increased, platform scale and relationships largely determine access and ability to secure debt financing.
Looking to the future, 48% of survey participants stated general market conditions will be more favorable a year from now—although only 20 percent of respondents believe asset values will be more favorable in one year.
Data for the Q2 survey was gathered in April by Chicago-based Ferguson Partners on The Roundtable’s behalf. See the full Q2 report.

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News Release: While Uncertainty Remains, Commercial Real Estate Executives Are Optimistic About Future Market Conditions

Posted on February 17, 2023October 23, 2023 by Abigail Grenadier

(WASHINGTON, D.C.) — The Real Estate Roundtable’s Q1 Economic Sentiment Index reports that industry executives, while optimistic about the future, remain uncertain about current market conditions, citing inflation, rising interest rates, and supply chain disruptions as concerns. However, executives also express that perceptions and outlooks differ across asset classes, as some remain strong and others show concerns.

Roundtable President and CEO Jeffrey DeBoer said, “Fundamentally, our Q1 index illustrates that the trends accelerated by the pandemic have led to mixed performances across asset classes. Multifamily and industrial assets have maintained steady growth due to increased housing demand and supply chain needs, while hospitality and student housing are regaining momentum. But in the office sector, remote work policies, concerns over crime and transportation are driving record-high vacancy rates throughout the country, hurting city budgets and small businesses.”

“Looking forward, industry leaders are anticipating the landscape to improve throughout the year, despite recent declines in asset values and the decreased availability of debt and equity capital compared to a year ago. Policymakers should emphasize the need to return to the workplace while considering other innovative solutions such as legislation to convert underutilized offices to housing to entrench this optimism, create jobs, spur economic activity, and increase housing supply and tax revenue,” DeBoer added.

The Roundtable’s Economic Sentiment Index—a measure of senior executives’ confidence and expectations about the commercial real estate market environment—is scored on a scale of 1 to 100 by averaging the scores of Current and Future Economic Sentiment Indices. Any score over 50 is viewed as positive.

The Q1 Sentiment Index topline findings include:

The Q1 2023 Real Estate Roundtable Sentiment Index registered an overall score of 44, an increase of five points from the previous quarter. The Current Index registered at 31, a two-point increase from Q4 2022, and the Future Index posted a score of 58 points, an increase of ten points from the previous quarter.
Several survey respondents acknowledged the dangers of generalizing trends across the commercial real estate industry as the disparities between asset classes grow; multifamily and industrial continue to attract interest, hospitality and student housing are beginning to bounce back, meanwhile Class B office is struggling.
Nearly all survey participants (93%) expressed that asset values have fallen year-over-year. That said, conversations with industry leaders suggest that the market is still in a period of price discovery. With low transaction volume and a limited supply of debt capital, there is lingering uncertainty as to where asset prices will ultimately land.

Survey participants overwhelmingly indicated that the availability of debt and equity capital is worse today compared to one year ago (93% and 82% respectfully). However, over half of participants expect the capital markets to improve over the next 12 months.

Data for the Q1 survey was gathered in January by Chicago-based Ferguson Partners on The Roundtable’s behalf. See the full Q1 report.

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