Q4 Commercial Real Estate Conditions Balanced and Steady; Industry Execs Await Consequences of Elections

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Real Estate Roundtable President and CEO Jeffrey DeBoer
Real Estate Roundtable President and CEO Jeffrey DeBoer

2016 Sentiment Index Retains Year-Long Equilibrium, Yet Dips to 48 in Q4 Despite Consistent Market Fundamentals

WASHINGTON, Nov. 3, 2016 /PRNewswire/ — Commercial real estate industry executives report that balanced market conditions will close out 2016 on a strong and steady note, according to The Real Estate Roundtable’s Overall Q4 Sentiment Index.

“With the year drawing to a close during a tumultuous election cycle, responses to market conditions within our Sentiment Surveys showed consistency through all four quarters, reflecting steady growth and balanced markets,” said Roundtable CEO and President Jeffrey D. DeBoer. “As moderate economic growth faced headwinds of political uncertainty and international volatility throughout 2016, leaders in CRE now await the policy consequences of the upcoming national elections in anticipation of the economy’s future direction.”

The Q4 2016 Overall Sentiment Index registered at 48 — only one point down from the last quarter, yet a nine point dip from the same time one year ago.  [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’sCurrent-Conditions Index of 51 remained the same as the previous quarter, yet dropped 11 points compared to the Q4 2015 score of 62.  This quarter’s Future-Conditions Index of 46 also decreased two points from the previous quarter and is down six points compared to the same time one year ago, when it registered at 52.

The Q4 Sentiment Index Topline Findings include:

  • While asset pricing and debt constraints are concerning, general sentiment about the U.S. market is neutral to positive. Gateway markets have been identified as past peak pricing but many secondary and tertiary markets are intriguing for value-add investors.
  • Economic growth, while slow to moderate, has been recognized as positive, and most expectations are for a continued low interest rate environment.
  • For certain property types, the market is past peak pricing. Core and trophy assets remain a viable long term investment opportunity.
  • Construction lending has become challenging to secure, but for high quality, stabilized assets, financing is still available with competitive terms. Equity capital remains available and the US remains a highly attractive location for the placement of overseas capital.

Although 45% of survey participants said asset prices increased “much higher” compared to one year ago, 51% of respondents said they expect generally flat valuations a year from now — at least in part due to peak pricing for certain property types.  Some also noted that inflows of private capital currently favor equity to debt, dependent on the quality of the property.

DeBoer added, “With all eyes on the elections and any subsequent moves on interest rates, we see an investment landscape where both domestic and international investors eagerly await the policy direction of the next Administration and Congress. The Real Estate Roundtable plans to continue communicating its non-partisan policy priorities with the new White House, Senate and House — such as growth-oriented tax reform; appropriate regulation of financial markets; sustainability incentives; and safety and security information sharing — all which contribute toward healthy commercial real estate markets and job creation in markets throughout the country.”