Commercial Real Estate Executives Positive Despite Cautious 2019 Outlook

Staff Report

Monday, February 12th, 2018

Commercial real estate industry leaders continue to acknowledge positive conditions in the economy and current real estate markets, while expressing some caution about 2019, according to The Real Estate Roundtable's Q1 2018 Economic Sentiment Index released today.

"As our Q1 Index shows, commercial real estate executives continue to anticipate strong near term asset values and capital availability," said Roundtable President and CEO Jeffrey DeBoer. "Strong, growing commercial real estate markets go hand in hand with overall positive economic growth.  Moreover, healthy commercial real estate markets directly benefit local communities by providing significant revenue to support local budgets and services," DeBoer added.

The Roundtable's Q1 2018 Sentiment Index registered at 54 — a one point increase from the last quarter of 2017. [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 57 increased four points from the previous quarter. This quarter's Future Conditions Index of 51, decreased by one point from the previous quarter.

The report's Topline Findings include:

  • While the Q1 index came in at 54, there is a noticeable gap between the scores for current conditions (57) and future conditions (51). Responders are feeling comfortable about the stability of the real estate market in 2018, but many expressed concerns about what the market may look like in 2019.

  • With asset values nearing perceived peaks in gateway cities, the real estate community has demonstrated discipline many feel was absent in the previous cycle. Debt and equity sources of capital are making thoughtful, risk-weighted decisions.

  • Asset values continue to increase in secondary and tertiary markets as investors chase yield. In gateway and coastal cities, many responders feel that markets are nearing peak values.

  • For high quality investments in primary markets, responders feel there are many sources of debt and equity capital. Many responders suggested alternative lending platforms are providing increased competition.

Thirty-eight percent of survey participants report Q1 asset values today are "somewhat higher" compared to this time last year, suggesting primary markets are peaking, with increased accessibility to debt and equity capital in the market. However, with 57% of respondents said they expect values to be "about the same" one year from now, pricing may remain at peak value throughout 2018.

DeBoer noted, "Participants in our Q1 Index survey also report that current market conditions may not last throughout next year.  In the meantime, The Roundtable plans for the remainder of this year to work with Congress and Treasury to ensure that the Tax Cuts and Jobs Act is implemented effectively.  We also look forward to working with policymakers and the Trump Administration on a national infrastructure plan that will create more jobs and further stimulate the American economy."