CRE Industry Cautiously Optimistic on Downturn: Survey

Real estate professionals are confident a market downturn won’t occur until at least 2020, but are notably more pessimistic than in recent years, according to a RCLCO report.

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The majority of real estate professionals don’t anticipate an economic downturn until at least 2020, according to real estate advisory firm RCLCO. In the company’s just-released Mid-Year 2019 Sentiment Survey, 88 percent of respondents were confident in a little breathing room before an economic downturn, which they believe won’t occur for at least another year.

On the heels of the firm’s year-end 2018 Sentiment Survey, where respondents were “notably more pessimistic” about current and future real estate market conditions, respondents to the Mid-Year Survey were somewhat less pessimistic about the next downturn due to improving stock market conditions and resilient real estate market fundamentals.

Respondents of the Mid-Year Survey were asked what they thought would be the most likely cause of the next real estate downturn. The top answer was trade wars, followed by global economic slowdown, stock market meltdown, real estate overbuilding, risky lending practices and military engagements.

Proceed with caution

In terms of product type, respondents were more confident than in the year-end survey six months prior that nearly all product types, with the exception of retail, were creeping back from a peak late stable phase of the real estate cycle. Within the next 12 months, respondents expect all land uses to be in the late stable phase at the least, with the resort/second home and retail sectors moving into an early downturn phase.

“There is still more capital than there are good real estate opportunities that meet return expectations, and capital stacks at the asset level have been constructed more conservatively in the upturn phase of this cycle, so we don’t expect to see that much stress in the system,” RCLO wrote in the report. “And while we don’t expect to see a repeat of the dislocation experienced during the Great Recession, there will still be opportunities in the next downturn.”

Compared to 18 months ago, real estate executives are noticeably less optimistic about the commercial real estate market’s future performance. RCLCO’S year-end 2017 survey found that respondents were more optimistic on the commercial real estate market, in some part due to the strength of the stock market.

Survey respondents come from markets across the U.S., with most being developers, builders and investors. The respondent mix is weighted toward markets in coastal areas and the Sunbelt, where most of the development activity in this cycle has occurred, according to RCLCO.  

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