Q2 2018 Sentiment Index — Commercial Real Estate Industry Leaders See Continued Balanced Market Fundamentals for Q2

Despite Overall Positive Sentiment About Market Conditions, Industry Remains Cautious of Geopolitical Uncertainty              

 Roundtable Weekly Archive -  - .pdf of entire Q2 2018 Sentiment Index report -

       May 10, 2018

    Media Contacts: (202) 639-8400
    Scott Sherwood or Abigail Grenadier

(WASHINGTON, DC) — Commercial real estate industry leaders continue to see balanced market fundamentals as plentiful financing and equity continue to drive investment activity, despite rising costs of construction and an uncertain outlook for markets in 2019, according to The Real Estate Roundtable’s Q2 2018 Economic Sentiment Index released today.  

Jeff EPA

Real Estate Roundtable President and CEO Jeffrey DeBoer noted, "As our Q2 Index shows, with debt and equity readily available for quality investments and new development opportunities arise, 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."

(Download the Q2 2018 Sentiment Index report)

“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.

The Roundtable’s Q2 2018 Sentiment Index registered at 51 — a three point decrease from Q1 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 52, down five points from the previous quarter. This quarter’s Future Conditions Index of 50, decreased by one point from the previous quarter.

The report's Topline Findings include: 

• The Q2 index came in at 51, a 3 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.

• 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. 

While 49% of survey participants report Q2 asset prices today are “about the same” compared to this time last year — 42% of respondents said they expect values to be “about the same” one year from now — suggesting primary markets have remained at peak pricing over the past year, and should continue to do so through 2019.

DeBoer noted “As our Q2 Index shows, with debt and equity readily available for quality investments and new development opportunities arise, 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.

About The Real Estate Roundtable Sentiment Survey

The Real Estate Roundtable Sentiment Survey is the industry’s most comprehensive measure of leading real estate executives’ confidence in financial and real estate markets.  The survey, conducted by FPL Advisory Group, captures the perspectives of senior real estate executives, including CEOs, presidents, board members, and other executives from a broad set of industry sectors including owners and asset managers, financial services firms and operators.

About The Real Estate Roundtable
The Real Estate Roundtable brings together leaders of the nation’s publicly-held and privately owned real estate ownership, development, lending and management firms with the leaders of national real estate trade associations to jointly address key national policy issues relating to real estate and the overall economy. Collectively, Roundtable members' portfolios contain over 12 billion square feet of office, retail and industrial properties valued at more than $1 trillion; over 1.5 million apartment units; and in excess of 2.5 million hotel rooms.  Participating trade associations represent more than 1.5 million people involved in virtually every aspect of the real estate business.

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