Spring Voices

By Paul Rosta

It’s been the noisiest spring in memory, thanks to the current political scene, so lately I’ve been turning down the volume and listening to the quieter voices of those who are sizing up what’s next for commercial real estate. A sampling of those voices, including some of those in our June 2016 digital issue, indicates a more cautious mood than existed a few quarters ago, yet as is usually the case, the story is more complex.

This year’s early jitters about volatility in the economy and capital markets have raised the level of caution in the industry. When DLA Piper polled its clients in 2014, 89 percent of respondents called themselves bullish about the U.S. commercial real estate market. Only 62 percent of the law firm’s clients did so in the survey released at the beginning of May.

The decline is striking but should be kept in perspective, as Jay Epstien, global co-chair of DLA Piper’s real estate practice, pointed out. “It’s still a pretty good number of people optimistic about what’s going on out there. That’s an important takeaway,” Epstien told CPE Contributing Editor Barbra Murray.

I was also struck by the subdued tone of the Urban Land Institute’s recent Real Estate Consensus Forecast. Real estate economists estimate that transaction volume will dip from $534 billion in 2015 to $475 billion in 2018. Moreover, they expect price growth to slow from 5 percent in 2016 to 3 percent in 2018.

Lately we’ve also been hearing revealing insights about strategy in this uncertain time. As Associate Editor Samantha Goldberg reported, several CEOs at ULI’s Spring Meeting in Philadelphia displayed both prudence and a touch of optimism. Brandywine Realty Trust is an active seller, having disposed of some $1.2 billion worth of assets in the past 12 months or so. “I think most of the markets that were going to move have moved; most of the rental rate increases will be the same; growth is decelerating,” the REIT’s president & CEO, Gerard Sweeney, told his audience.

Brandywine’s outlook is not entirely downbeat, however. Proceeds from those sales are enabling the company to fund an $800 million development pipeline while avoiding burdensome debt. “We have positioned ourselves so that if there’s a downturn coming, we’ve got all our sales or repositioning done. If it’s a false beep and things rebound, we’re in great shape,” Sweeney explained.

As the second half of the year approaches, these industry veterans sound realistic without crossing into pessimism. While it’s impossible to foretell what the rest of 2016 holds, the prudence conveyed by these voices is enough to make you feel, well, a bit optimistic.