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(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 landscape 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.
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.
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(WASHINGTON, D.C.) — The Real Estate Roundtable’s Q2 2023 Economic 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.
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.
Roundtable President and CEO Jeffrey DeBoer 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 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 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.
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.
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(WASHINGTON, D.C.) — Industry leaders remain optimistic about future market conditions while acknowledging uncertainty due to interest rate increases, maturing office loans, financing costs, prolonged remote work policies, and labor productivity, according to The Real Estate Roundtable’s Q3 2023 Sentiment Index.
Roundtable President and CEO Jeffrey DeBoer said, “Many maturing loans were financed when base rates were near zero and now need to be refinanced in a challenging environment where rates are much higher, values are lower, and markets are less liquid. Higher rates are also contributing to cyclical pressure on valuations. On top of that, remote work has devastated America’s downtowns and stalled office demand.”
DeBoer added, “The economy has undergone significant transformations due to the pandemic. The realities and challenges we face today requires us to rethink how businesses and people use offices, retail, housing, medical care, and more. Future buildings must accommodate the changes to be successful. The Roundtable will continue to advocate and support measures that boost the availability of credit and enhance the formation of capital in the commercial real estate industry, particularly during these times of market uncertainty.”
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 Q3 Sentiment Index topline findings include:
• All indices reported increases: The Q3 2023 Real Estate Roundtable Sentiment Index registered an overall score of 46, an increase of five points from the previous quarter. The Current Index registered 33, a six-point increase from Q2 2023, and the Future Index posted a score of 59 points, an increase of four points from the previous quarter.
• Disparities between asset classes persist in these challenging market conditions. Hotel and retail markets are largely performing well. Niche asset classes continue to generate interest. On the other hand, office is performing poorly, and rental growth in multifamily and industrial are starting to abate.
• Perceptions of declining asset values continue to dominate, with 95% of survey participants reporting that asset values are lower as compared to last year. While Class A properties across all asset classes are trading at competitive prices, managers are still in a “wait and see” mindset for other assets, resulting in lower transaction volumes and an inability to complete accurate valuations.
• The availability of capital —both debt and equity—continues to be a pressing topic; 85% and 69% of survey participants, respectively, believe that today’s conditions are more difficult than a year ago. Although managers face a difficult capital raising environment, only 24% and 9% of participants believe debt and equity availability respectively will be worse a year from now as the industry works to creatively solve financing issues.
Data for the Q3 survey was gathered by Chicago-based Ferguson Partners on The Roundtable’s behalf in July. See the full Q3 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.
(WASHINGTON, D.C.) — Industry executives report commercial real estate asset classes continue to face a variety of challenges centered around higher financing costs, increased illiquidity, and uncertain post-pandemic user demand. Reduced transaction volume has also contributed to difficult price discovery, according to The Real Estate Roundtable’s Q4 2023 Sentiment Index.
Roundtable President and CEO Jeffrey DeBoer said, “Commercial real estate is at the front line of change in how people use the built environment in a post-pandemic society. Steep interest rate increases and diminished liquidity caused by regulatory pressures have led to much lower transaction volume and continued uncertainty in price discovery. The challenges facing different asset classes in the broad, complex CRE landscape is reflected in our Q4 Sentiment Index.”
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.
The Q4 Sentiment Index topline findings include:
• The Q4 2023 Real Estate Roundtable Sentiment Index registered an overall score of 44, a decrease of two points from the previous quarter. The Current Index registered 32, a one-point decrease from Q3 2023, and the Future Index posted a score of 57 points, a decrease of two points from the previous quarter. These stable indices highlight the persistent challenges faced by participants in the real estate market.
• Although there are variations among asset classes and even within specific property types, ongoing uncertainty within the broader commercial real estate industry persists due to concerns about liquidity, capital availability, interest rates, and remote work. Bright spots exist in smaller classes, such as data centers, outlet malls, and hotels, while multifamily and industrial continue to attract interest. Within the office sector, class “A” properties with top-of-the-line amenities are the lone high performers.
• An overwhelming 92% of survey participants indicate that asset values have decreased compared to the previous year. The valuation process has been challenging due to limited transactions, and the combination of current cap rates and fluctuating interest rates has further complicated pricing, ultimately leading to a view that asset values have decreased relative to one year ago.
• Survey participants express ongoing concerns about the capital markets landscape, with 70% indicating that the availability of equity capital has worsened compared to a year ago, and 86% believing the availability of debt capital is also worse.
DeBoer added, “We welcome efforts at all levels of government to incentivize conversions of commercial use to residential use. Yet various CRE markets and asset classes need more time to adapt to the new preferences of clients; more flexibility to restructure their asset financing; and patience while adjusting to the evolving valuation landscape. In addition to conversion activities, The Roundtable continues to urge the federal government to return to the workplace and support measures to assist loan modifications and increase liquidity available to all asset classes and their owners. We also remain opposed to regulatory proposals that impede capital formation.”
Some sample responses from participants in the Sentiment Index’s Q4 Survey include:
“Your perspective depends on what assets you hold and the strength of your balance sheet.”
“The distribution of capital is highly dependent on specific sectors and asset quality.”
“There will be a ‘great revaluation’ cycle with more real estate assets priced lower. There haven’t been enough transactions to collect good data, and the transactions that are happening are in the most dire of circumstances, which is driving erratic and less reliable market information.”
Responses by survey participants reflect recent, persistent challenges facing certain sectors and assets. In comparison to last quarter, sentiments on current conditions are down by 1 point, perceptions of future, conditions are down by 2 points, and overall conditions are down by 2 points.
Regarding sentiment on the state of current asset values, 92% of respondents believe they are lower than one year ago, 3% feel they are higher, and 5% believe asset values have remained the same compared to a year ago. This contrasts with the Sentiment Survey one year ago, when only 59% of participants expected asset values would be lower in this Q4 2023, indicating a steep decline in current perceptions of asset values.
Survey participants also commented on the availability of equity capital, with 70% noting it is worse compared to one year ago, 3% stating it has improved, and 27% that the availability of equity remains the same. For the availability of debt capital, 86% of participants believe it is worse compared to one year ago, 2% feel it has improved, and 12% believe the availability of debt remains the same.
Data for the Q4 survey was gathered in October by Chicago-based Ferguson Partners on behalf of The Roundtable. See the full Q4 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.
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