Q3 2015 Sentiment Index: Commercial Real Estate Outlook Tempered by Cyclical and Interest Rate Concerns, “External Threats”

Despite Strong Fundamentals, Capital Flows,
Industry Execs See Growth Plateauing
 

 The Roundtable’s 2015 Policy Agenda  -  .pdf of entire Q3 2015 Sentiment Index report -

    August 6, 2015

 Media Contacts: (202) 639-8400
 Xenia (Ksen’ya) Jowyk or Scott Sherwood

(WASHINGTON D.C.) — Commercial real estate market fundamentals remain strong — amid continued, gradual improvement in the broader U.S. economy — yet participants in The Real Estate Roundtable’s latest quarterly “Sentiment Survey” remain uneasy about a multitude of overseas threats, expected monetary policy tightening, and typical cyclical issues.  Reflecting this sense of uncertainty — which has persisted through six-plus years of economic recovery — and a slight softening in expectations for future growth, the survey’s “Future Conditions Index” has fallen 11 points since this time last year (from 67 in Q3-2014 to 56 in Q3-2015).   

Jeff DeBoer x200 IMG_1494

Roundtable President and CEO Jeffrey D. DeBoer commented about the Q3 2015 Sentiment Index, noting “... there are concerns about global instability, rising interest rates, and the sense that growth opportunities may be getting harder to find at this stage in the cycle.”

 Most survey respondents said they expect stable asset valuations over the coming year, although there were anecdotal comments about capital costs going up, and the potential for a “moderation” or “correction” in real estate values — which would affect local government tax revenues, bank holdings of commercial real estate, and the portfolios of investors large and small.

“As The Roundtable’s Q3 survey shows, commercial real estate conditions are quite good — driven by steadily improving job growth and demand across the economy, as well as strong capital flows and appropriate levels of construction and lending in key sectors,” said Roundtable President and CEO Jeffrey D. DeBoer. “At the same time, there are concerns about global instability, rising interest rates, and the sense that growth opportunities may be getting harder to find at this stage in the cycle,” he added. “When markets eventually begin to plateau, we hope national policies will be in place to spur more robust job creation and to maintain appropriate flows of investment capital into real estate markets.”

Although survey respondents cite strong inflows of foreign equity capital — with some projecting more such capital from Asia — the amounts being invested in U.S. real estate vis-a-vis other sectors of the U.S. economy are still relatively small. To encourage more long-term investment in U.S. commercial real estate markets and job-creating infrastructure projects, The Roundtable supports pending legislation to reform the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA).

Another common-sense policy step would be to reauthorize and reform the EB-5 investment “regional center” program before its scheduled expiration on Sept. 30 (along the lines of pending bills in the House and Senate). An in-depth economic study released in June found the EB-5 program to have a “disproportionately large” and positive impact on net U.S. job creation and domestic investment — generating a minimum of $5.2 billion in private investment between 2005 and 2013.  In 2013 alone, the program generated at least $1.6 billion in private investment and 31,000 jobs — more jobs than 11 different states have individually created in the last 12 months.

The Q3 survey data was gathered in July by Chicago-based FPL Associates on The Roundtable’s behalf.   

References: The full survey report and The Roundtable’s 2015 Annual Report (“Sustainable Momentum”).
 
The next Sentiment Survey covering Q4 2015 will be released in early November.

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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