2022 Quarterly Sentiment Index – The Real Estate Roundtable

2022

Quarterly Economic Index

Q1 Sentiment Report

(WASHINGTON, D.C.) — The Real Estate Roundtable’s Q1 Economic Sentiment Index reports that industry executives, while optimistic about the future, remain uncertain about current market conditions, citing inflation, rising interest rates, and supply chain disruptions as concerns. However, executives also express that perceptions and outlooks differ across asset classes, as some remain strong and others show concerns.

Roundtable President and CEO Jeffrey DeBoer said, “Fundamentally, our Q1 index illustrates that the trends accelerated by the pandemic have led to mixed performances across asset classes. Multifamily and industrial assets have maintained steady growth due to increased housing demand and supply chain needs, while hospitality and student housing are regaining momentum. But in the office sector, remote work policies, concerns over crime and transportation are driving record-high vacancy rates throughout the country, hurting city budgets and small businesses.”

“Looking forward, industry leaders are anticipating the landscape to improve throughout the year, despite recent declines in asset values and the decreased availability of debt and equity capital compared to a year ago. Policymakers should emphasize the need to return to the workplace while considering other innovative solutions such as legislation to convert underutilized offices to housing to entrench this optimism, create jobs, spur economic activity, and increase housing supply and tax revenue,” DeBoer added.

The Roundtable’s Economic Sentiment Index—a measure of senior executives’ confidence and expectations about the commercial real estate market environment—is scored on a scale of 1 to 100 by averaging the scores of Current and Future Economic Sentiment Indices. Any score over 50 is viewed as positive.

The Q1 Sentiment Index topline findings include:

The Q1 2023 Real Estate Roundtable Sentiment Index registered an overall score of 44, an increase of five points from the previous quarter. The Current Index registered at 31, a two-point increase from Q4 2022, and the Future Index posted a score of 58 points, an increase of ten points from the previous quarter.
Several survey respondents acknowledged the dangers of generalizing trends across the commercial real estate industry as the disparities between asset classes grow; multifamily and industrial continue to attract interest, hospitality and student housing are beginning to bounce back, meanwhile Class B office is struggling.
Nearly all survey participants (93%) expressed that asset values have fallen year-over-year. That said, conversations with industry leaders suggest that the market is still in a period of price discovery. With low transaction volume and a limited supply of debt capital, there is lingering uncertainty as to where asset prices will ultimately land.
Survey participants overwhelmingly indicated that the availability of debt and equity capital is worse today compared to one year ago (93% and 82% respectfully). However, over half of participants expect the capital markets to improve over the next 12 months.

Data for the Q1 survey was gathered in January by Chicago-based Ferguson Partners on The Roundtable’s behalf. See the full Q1 report.

The Real Estate Roundtable brings together leaders of the nation’s top publicly-held and privately-owned real estate ownership, development, lending and management firms with the leaders of major national real estate trade associations to jointly address key national policy issues relating to real estate and the overall economy.

Q2 Sentiment Report

Download

Economic Headwinds and Geopolitical Uncertainty Top CRE Executives’ Views About Q2 Market Conditions

(WASHINGTON, D.C.) — Commercial real estate executives remain optimistic about overall Q2 market conditions despite growing economic headwinds and geopolitical uncertainty, according to The Real Estate Roundtable’s Q2 2022 Economic Sentiment Index.

Roundtable President and CEO Jeffrey DeBoer said, “The decline in this quarter’s Real Estate Roundtable Sentiment Index reflects concerns regarding inflationary pressures, interest rate increases, labor shortages and supply chain disruptions. Even so, the overall sentiment of commercial real estate industry senior executives remains positive. Businesses and individuals continue to rethink how real estate meets their evolving working, living, and traveling preferences. Building owners, managers and financiers across the nation are partnering with their business and residential tenants to respond, while also pressing forward in developing and redeveloping buildings to be greener, smarter, and more efficient.”

He added, “Our Q2 Sentiment Index reveals especially bright spots for lease demand in a wide swath of the economy, particularly regarding life sciences, industrial, multifamily, and data center assets. At the same time however, high inflation, rising interest rates, labor and supply chain shortages are increasing costs associated with all real estate development and operations. The impact of ongoing war in eastern Europe is another cloud tempering optimism. We urge national policymakers to focus on creating jobs and supporting strong real estate asset values. Both actions would buttress the overall economy and help local community budgets provide needed safety, education and transportation services.”

The Roundtable’s Overall Sentiment Index—a measure of senior executives’ confidence and expectations about the commercial real estate market environments—is scored on a scale of 1 to 100 by averaging the scores of Current and Future Economic Sentiment Indices. Any score over 50 is viewed as positive.

Topline findings include:

The Q2 2022 Real Estate Roundtable Sentiment Index registered an overall score of 51, a decrease of 15 points from the previous quarter’s overall score and 26 points lower than a year earlier. Survey respondents remain optimistic but have tempered their expectations due to geopolitical and economic uncertainties, which include rising interest rates, increased inflation, and labor and supply chain shortfalls.
Perceptions vary by property type and geography, with industrial, multifamily, life sciences, and data centers continuing to be most favored. As employers continue to roll out return-to-office policies, the demand for office space remains uncertain.
Asset values have trended upward across asset classes compared to last year, while forward-looking expectations are starting to taper off.
Participants cited a continued availability of debt and equity capital despite those heightened concerns over rising interest rates, geopolitical concerns, and inflationary risk.

Data for the Q2 survey was gathered in April by Chicago-based Ferguson Partners on The Roundtable’s behalf. See the full Q2 report.

Q3 Sentiment Report

Download

Commercial Real Estate Executives’ Perceptions Of Industry Fundamentals Hold Steady Despite Current Market Conditions

(WASHINGTON, D.C.) — Commercial real estate executives continue to view current conditions as
significantly less favorable than previous quarters due to rising interest rates, increased inflation, supply chain disruptions, and labor shortages. However, leaders’ views of where the markets will be one year from today have improved, indicating a cautiously optimistic outlook for the future, according to The Real Estate Roundtable’s Q3 2022 Economic Sentiment Index.

Roundtable President and CEO Jeffrey DeBoer said, “Our Q3 Sentiment Index reflects many of the
challenges our economy and industry have faced since early 2022. While these challenges will continue
to be bottlenecks in the near-term, CRE leaders are optimistic about the future, as underlying real estate fundamentals, such as housing, remain in high demand.

DeBoer added, “Industrial and multifamily continue to be a source of strength, but office and retail still struggle to regain momentum following the pandemic. These are uncertain times, but quality assets and owners will persevere as they continue to meet fundamental demand.”

The Roundtable’s Overall Q3 2022 Sentiment Index—a reflection of the views of real estate industry leaders—registered an overall score of 44. The Economic Sentiment Overall Index is scored on a scale of 1 to 100 by averaging the scores of Current and Future Indices. Any score over 50 is viewed as positive. The Current Index registered at 38, a 19-point decrease compared to Q2 2022; however, the Future Index registered a score of 51, a 5-point increase from the previous quarter, reflecting leaders’ optimism in future conditions.

Topline findings:

The Q3 2022 Real Estate Roundtable Sentiment Index registered an overall score of 44, a decrease of 7 points from the previous quarter’s overall score and 34 points lower than a year earlier.
Survey respondents are cautious of rising interest rates, increased inflation, supply chain disruptions, and other issues but remain optimistic regarding the underlying fundamentals for
real estate.
While fundamentals, such as industrial and multifamily, remain strong in terms of supply and demand, there is concern over current market conditions for other asset classes, particularly
office and retail.
Although in the short-term the pandemic has led to a lack of enthusiasm for office and retail assets, industry leaders expect strong, long-term demand for assets that allow increased
flexibility by providing tenants with more amenities and higher quality accommodations.
Rising interest rates and general market uncertainty represent clear challenges facing asset pricing; where trades are taking place, they have been occurring at a discount relative to
recent high-water marks.
In terms of capital markets, participants noted that capital is available, though market uncertainty has induced hesitancy for risk-taking and tightening across both debt and equity.

Data for the Q3 survey was gathered in July 2022 by Chicago-based Ferguson Partners on The Roundtable’s behalf. Read the full Q3 report.

The Real Estate Roundtable brings together leaders of the nation’s top publicly-held and privately owned real estate ownership, development, lending, and management firms with the leaders of major national real estate trade associations to jointly address key national policy issues relating to real
estate and the overall economy.

Q4 Sentiment Report

Download

Rising Interest Rates, Tighter Liquidity, Hybrid Work, and Cost Cutting Reflected in Real Estate Roundtable’s Q4 Sentiment Index

(WASHINGTON, D.C.) — The Real Estate Roundtable’s Q4 Economic Sentiment Index dropped to an overall score of 39, five points lower than the previous quarter. Commercial real estate executives cited a reduction in available equity and debt capital, changes in post-pandemic office use, general business cost cutting, and employee layoffs among the contributing factors causing market uncertainty and a decrease in transactions.

Roundtable President and CEO Jeffrey DeBoer said, “Industry executives report that asset valuation difficulties, coupled with the tightened availability and cost of capital, have caused a slowdown in commercial real estate investment and overall transactions. This situation, magnified by steep inflation and interest rate hikes, is leading to investor hesitancy. Additionally, while some businesses are instituting greater return-to-the-workplace policies, many are not, partially due to employee reluctance. Ultimately, greater clarity on businesses’ future post-pandemic workspace demands is needed to provide a more reliable window into asset valuations, particularly in the office sector.”

“As an industry, we’re working with tenants to provide attractive building safety and use amenities—and where possible, converting underutilized property types to other uses, including housing. We continue to urge policymakers and business leaders to push for the safe return of workers to their shared, physical workspace. A back-to-the-workplace movement would increase overall economic productivity and competitiveness, help preserve urban small businesses, and lower the threat to the property tax base of municipalities throughout the nation,” DeBoer added.

The Q4 Sentiment Index topline findings include:

The Q4 2022 Real Estate Roundtable Sentiment Index registered an overall score of 39, a decrease of five points from the previous quarter. The Current Index registered 29, a nine-point drop from Q3 2022, and the Future Index posted a score of 48 points, a dip of three points from the previous quarter.
Seventy-eight percent of respondents believe that general market conditions today are “somewhat worse or much worse” versus one year ago, while 70 percent anticipate current conditions will continue or get worse one year from now.
Survey respondents noted a reduced number of transactions across all asset classes, including multifamily and industrial. However, some specialty assets such as logistics and biomanufacturing are seen as rising stars emerging from this period of economic uncertainty.
Survey respondents found it difficult to comment on pricing due to fewer transactions. However, 92 percent believe that real estate asset values compared to one year ago are “somewhat lower or much lower” as investors cautiously eye the economy.
In comparison with last year, 76 percent of participants said equity availability was “somewhat worse or much worse”—and 97 percent said availability of debt capital was worse.
While current capital availability is sparse, real estate industry leaders reported some optimism about future availability of capital. Forty-eight percent expect debt financing will be somewhat better this time next year, whereas 43 percent said the availability of equity will be somewhat better one year from now.

Data for the Q4 survey was gathered in October by Chicago-based Ferguson Partners on The Roundtable’s behalf. See the full Q4 report.