Tag: Quarterly Sentiment Index

Q2 Economic Sentiment: Commercial Real Estate Executives See Disciplined Markets, Healthy Economy

Posted on by Trey Jackson

Questions Remain About The Length of The Overall Economic Cycle  

(WASHINGTON, D.C.) — Commercial real estate executives expressed increased optimism about real estate markets and overall economic conditions, according to The Real Estate Roundtable’s 2019 Q2 Sentiment Index released today. 

The Q2 Sentiment Index registered 51 – a six point increase from the previous quarter. The Index has registered between 50 and 55 every quarter since Q1 2017 – except Q1 2019.

“The increase in our Q2 Sentiment Index can be largely attributed to a calming of the late 2018 capital market volatility and interest rate concerns,” said Real Estate Roundtable President and CEO Jeffrey DeBoer.  “Debt and equity continue to be widely available for quality commercial real estate investments.   At the same time strong lending underwriting is keeping uneconomic new development in check. This positive situation has positioned the commercial real estate industry on solid footing to respond to a continuing growing economy, or to mitigate the impact of a natural slowdown in the current historically long economic cycle,” DeBoer added.

The Roundtable’s Q2 2019 Sentiment Index’s score of 51 reflects a positive trend for the overall economy and real estate market conditions.  [The Overall Index is scored on a scale of 1 to 100 by averaging Current and Future Indices; any score over 50 is viewed as positive.]  Both the Current-Conditions Index of 53 and Future-Conditions Index of 48 for this quarter increased six points from Q1.  

The report’s Topline Findings include:

  • The Real Estate Roundtable Q2 2019 Sentiment Index registered 51 – a six point increase from the previous quarter.  Survey participants expressed increased optimism that real estate markets will remain healthy as positive economic conditions persist. Respondents are encouraged by the resilience of the market, but have questions about the length of the overall economic cycle.  
  • Many respondents expressed caution around the late cycle timing, but they also pointed to a high level of discipline on behalf of equity and debt providers. Lending standards have remained rigid and underwriting of new deals has been thoughtfully executed.
  • Respondents suggested that asset values for certain property types may be approaching peak. The perceived gap between buyer and seller expectations supports this view.
  • Debt and equity are viewed as widely available for quality investments. Despite plenty of capital flowing into the market, respondents pointed to the discipline exhibited by lenders as a factor contributing to their market confidence.

While 42% of survey participants reported Q2 asset values today are “about the same” compared to this time last year, 56% of respondents believe that one year from now, values will be “about the same.”  Many respondents noted asset values may continue to grow in some markets, yet core asset pricing may be tightening.

DeBoer noted, “Real estate markets are showing signs of impressive discipline, as commercial real estate executives carefully consider how the industry may be able to weather unpredictable economic challenges that are bound to arise.  Lawmakers in Washington should focus on bipartisan economic policies affecting infrastructure investment and development of opportunity zones, which can spur continued job creation and support healthy communities nationwide.”

Data for the Q2 survey was gathered in April by Chicago-based FPL Associates on The Roundtable’s behalf.  Full survey report.

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Commercial Real Estate Industry Leaders See Balanced Market Fundamentals for Q2

Posted on by Trey Jackson

The Roundtable’s Q2 2018 Economic Sentiment Index released yesterday shows that as plentiful financing and equity continue to drive commercial real estate investment activity, industry leaders continue to see balanced market fundamentals, despite rising costs of construction and an uncertain outlook for markets in 2019.

The Roundtable’s  Q2 2018 Economic Sentiment Index   shows  plentiful financing and equity continue to drive commercial real estate investment activity.   

The report’s Topline Findings include: 

  • The Q2 index came in at 51, a three point drop from Q1. Awareness of the length of current cycle and trepidation about economic conditions in 2019 has led to a general feeling of cautiousness. That said, availability of affordable financing and plentiful equity for the best quality investments are driving continued investment activity. 
  • Despite rising costs of construction, development continues somewhat unabated. Some responders pointed to the expectations of the millennial generation as the driver for reimagined building uses and new developments. 
  • Asset values are perceived as peaking for the most property types and markets. Industrial and multifamily assets are viewed as classes with room to continue pricing growth, whereas many felt retail assets are overpriced and possibly overbought.

    Roundtable President and CEO Jeffrey DeBoer, “As our Q2 Index show, with debt and equity readily available for quality investments and new development opportunities, industry leaders are being forced to reevaluate, innovate, and reimagine their buildings – driven by an influx of the millennial generation and their new set of expectations for office and multifamily markets.”

  • Responders noted the absence of previously ubiquitous Asian capital this quarter. Despite this absence, all responders felt debt and equity was readily available for quality investments.  

“Real estate fundamentals continue to remain strong into 2018, where balance between supply and demand in almost every sector is healthy, while debt and equity for real estate as an asset class remains abundant,” said Roundtable President and CEO Jeffrey DeBoer. “There are fears about political uncertainty, trade wars and interest rate increases, which are having some impact and creating a manageable amount of uncertainty for the markets for the remainder of 2018 and looking ahead to 2019.” 

DeBoer added, “As our Q2 Index shows, with debt and equity readily available for quality investments and new development opportunities, industry leaders are being forced to reevaluate, innovate, and reimagine their buildings – driven by an influx of the millennial generation and their new set of expectations for office and multifamily markets. It is vital for our industry to continue developing new technology solutions for the ever evolving demands of the market.” 

Data for the Q2 survey was gathered in April by Chicago-based FPL Associates on The Roundtable’s behalf.  The next Sentiment Survey covering Q3 2018 will be released in August.

Roundtable Q3 Survey: Commercial Real Estate Executives Report Balanced and Strong Current Market Conditions, Concern for the Future

Posted on by Trey Jackson

The Real Estate Roundtable’s latest quarterly Economic Sentiment Index reported commercial real estate industry executives continue to see balanced and stable market conditions for Q3, despite growing concerns that the market may be at peak pricing and could be nearing the end of its current cycle. 

The  Roundtable’s Q3 2018 Economic Sentiment Index registered at 52 — a one point increase from the last quarter. However, this quarter’s Future-Conditions Index of 49 is seven points lower than the Current-Conditions index of 56.

  • “As we move into the second half of the year, we continue to see robust markets, with debt and equity available, and asset values strong. The commercial real estate industry remains confident for the remainder of 2018,” said Roundtable CEO and President Jeffrey DeBoer. “The positive snapshot of current commercial real estate markets reflects a general absorption of recent interest rate increases, coupled with overall economic stimulation from tax reform.”  
  • The Roundtable’s Q3 2018 Sentiment Index registered at 52 — a one point increase from the last quarter. [The Overall Index is scored on a scale of 1 to 100 by averaging Current and Future Indices; any score over 50 is viewed as positive.] This quarter’s Current-Conditions Index of 56 increased four points from the previous quarter, and rose 5 points compared to the Q3 2017 score of 51. However, this quarter’s Future-Conditions Index of 49 is seven points lower than the Current-Conditions index of 56.

The report’s Topline Findings include:

Roundtable CEO and President Jeffrey DeBoer noted, “Looking to future market conditions, industry executives are noting uncertainties regarding the November midterm elections and growing interest rate and international trade concerns. Policymakers must stay focused on developing pro-growth policies that continue to benefit the overall economy and spur job growth.”

  • The Q3 index came in at 52, a one point increase from Q2. Responders view the market as balanced in terms of property supply and demand. Some responders pointed to pockets where the balance is slipping, but felt the general market conditions are positive and will continue to be so, barring an unexpected event. 
  • Most responders feel market conditions are stable, but there is growing sentiment suggesting the industry is nearing the end of its current cycle. This sentiment is reflected in the seven point spread between current and future real estate conditions shown in Exhibit 1.
  • Most responders suggested asset values have reached peak pricing for many property types, and certainly in major gateway cities. Despite potential peak pricing, industrial properties continue to attract a large volume of investors. 
  • Debt and equity capital sources remain plentiful, but responders expressed concerns about the amount of debt available and the ramifications of the mounting time pressure some lenders have to invest their capital.

DeBoer added, “Looking to future market conditions, industry executives are noting uncertainties regarding the November midterm elections and growing interest rate and international trade concerns. Policymakers must stay focused on developing pro-growth policies that continue to benefit the overall economy and spur job growth.” 

Data for the Q3 survey was gathered in July by Chicago-based FPL Associates on The Roundtable’s behalf. The next Sentiment Survey covering Q4 2018 will be released in November. 

 

Commercial Real Estate Industry Leaders See Positive Market Fundamentals for Remainder of 2018

Posted on by Trey Jackson

Commercial real estate executives continue to see strong and balanced market conditions for the remainder of 2018 and moving forward into the new year, according to The Real Estate Roundtable’s Q4 2018 Economic Sentiment Index released today.

Commercial real estate executives continue to see strong and balanced market conditions for the remainder of 2018 and moving forward into the new year, according to The Real Estate Roundtable’s Q4 2018 Economic Sentiment Index. 

“Our latest Sentiment Index finds commercial real estate industry leaders experiencing continued positive market conditions and cautiously predicting solid performance into 2019. Concerns exist about interest rate and construction cost increases, as well as labor shortages. However, these concerns have not yet caused significant market disruption.” said Roundtable President and CEO Jeffrey DeBoer. “With some exceptions, supply and demand in major markets remains essentially in balance, and access to debt and equity remains strong. Disciplined, not aggressive, development and investment are the current watchwords of smart real estate executives,” DeBoer added. 

The Roundtable’s Q4 2018 Sentiment Index registered at 50 — a two point decrease from Q3 2018. [The Overall Index is scored on a scale of 1 to 100 by averaging Current and Future Indices; any score over 50 is viewed as positive.] This quarter’s Current Conditions Index of 53 decreased by three points from the previous quarter. This time last year, the Q4 2017 Current Conditions Index registered at 53 as well, highlighting the sustained equilibrium in the market this past year. This quarter’s Future Conditions Index of 47, decreased by two points from the previous quarter. 

The report’s Topline Findings include:

  • The Q4 index came in at 50, a two point drop from Q3. Most suggest that current market conditions are positive and expect such conditions to continue into the new year. However, some responders continue to question, “How much longer can this last?”   
  • Responders pointed to the increase in costs for constructions projects and the corresponding decline in development returns as a concerning market factor. As a result, fewer responders were highly optimistic about market conditions in 2019 as yield becomes increasingly hard to find.   
  • For the first time in many quarters, a large proportion of responders are indicating a belief that asset values will start declining. However, pricing is expect to stay relatively strong for assets in major markets. 
  • Responders feel debt and equity capital are plentiful in today’s market. Equity investors and lenders alike continue to show strong appetite for real estate.

Ninety percent of survey participants report Q4 2018 asset values today are “about the same” or “somewhat higher” compared to this time last year. Looking ahead, a minority of participants said they expect values to be “somewhat lower” one year from now with 55% of respondents seeing no significant value declines.

DeBoer noted, “After the midterm elections we look forward to continuing to work on positive, pro-growth national public policy. The nation needs policy action to address the growing labor shortage and infrastructure needs. The terrorism risk insurance act will also need to be extended in the new Congress. We intend to try to help policymakers tackle these and others issues by offering smart research and positive bipartisan advocacy that emphasizes commercial real estate’s contributions to job creation, communities; and retirement savings.” 

Data for the Q4 survey was gathered in October by Chicago-based FPL Associates on The Roundtable’s behalf.