Q3 2018 Sentiment Index — Real Estate & U.S. Economic Outlook

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

 Roundtable Weekly Archive -  .pdf of entire Q3 2018 Sentiment Index report -

       August 13, 2018

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

(WASHINGTON, DC) — 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, according to The Real Estate Roundtable’s Q3 2018 Economic Sentiment Index released today.   

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Real Estate Roundtable President and CEO 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."

(Download the Q3 2018 Sentiment Index report)

“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 President and CEO Jeffrey D. 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 a seven point decrease from the Current-Conditions index of 56.

The report’s Topline Findings include:  

• 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. 

While 49% of survey participants report Q3 asset prices today are “about the same” compared to this time last year — 47% of respondents said they expect values to be “about the same” one year from now — reflecting the view that primary markets will maintain peak pricing for many property types, with room for growth for industrial properties through 2019.

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.

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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