Questions Remain About The Length of The Overall Economic Cycle
(WASHINGTON, D.C.) — Commercial real estate executives expressed increased optimism about real estate markets and overall economic conditions, according to The Real Estate Roundtable’s 2019 Q2 Sentiment Index released today.
The Q2 Sentiment Index registered 51 – a six point increase from the previous quarter. The Index has registered between 50 and 55 every quarter since Q1 2017 – except Q1 2019.
“The increase in our Q2 Sentiment Index can be largely attributed to a calming of the late 2018 capital market volatility and interest rate concerns,” said Real Estate Roundtable President and CEO Jeffrey DeBoer. “Debt and equity continue to be widely available for quality commercial real estate investments. At the same time strong lending underwriting is keeping uneconomic new development in check. This positive situation has positioned the commercial real estate industry on solid footing to respond to a continuing growing economy, or to mitigate the impact of a natural slowdown in the current historically long economic cycle,” DeBoer added.
The Roundtable’s Q2 2019 Sentiment Index’s score of 51 reflects a positive trend for the overall economy and real estate market conditions. [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.] Both the Current-Conditions Index of 53 and Future-Conditions Index of 48 for this quarter increased six points from Q1.
The report’s Topline Findings include:
- The Real Estate Roundtable Q2 2019 Sentiment Index registered 51 – a six point increase from the previous quarter. Survey participants expressed increased optimism that real estate markets will remain healthy as positive economic conditions persist. Respondents are encouraged by the resilience of the market, but have questions about the length of the overall economic cycle.
- Many respondents expressed caution around the late cycle timing, but they also pointed to a high level of discipline on behalf of equity and debt providers. Lending standards have remained rigid and underwriting of new deals has been thoughtfully executed.
- Respondents suggested that asset values for certain property types may be approaching peak. The perceived gap between buyer and seller expectations supports this view.
- Debt and equity are viewed as widely available for quality investments. Despite plenty of capital flowing into the market, respondents pointed to the discipline exhibited by lenders as a factor contributing to their market confidence.
While 42% of survey participants reported Q2 asset values today are “about the same” compared to this time last year, 56% of respondents believe that one year from now, values will be “about the same.” Many respondents noted asset values may continue to grow in some markets, yet core asset pricing may be tightening.
DeBoer noted, “Real estate markets are showing signs of impressive discipline, as commercial real estate executives carefully consider how the industry may be able to weather unpredictable economic challenges that are bound to arise. Lawmakers in Washington should focus on bipartisan economic policies affecting infrastructure investment and development of opportunity zones, which can spur continued job creation and support healthy communities nationwide."
Data for the Q2 survey was gathered in April by Chicago-based FPL Associates on The Roundtable’s behalf. Full survey report.
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