There’s an old saying: If all the world’s economists were put end-to-end, they’d never reach a conclusion. While that’s usually the case, after the results of DLA Piper’s fifth State of the Market Survey, many of the top executives within the real estate industry – CEOs, CFOs, COOs and other senior positions – at least share the same bearish outlook.
The results of the survey, being released today at the international law firm’s 10th global real estate summit in Chicago, are somewhat unified. A full 70 percent – nearly 200 of 280 respondents – are bearish in their 12-month outlook for both the U.S. and the global financial markets. It’s not hard to see why, after we’ve weathered solvency concerns in in Europe, a gridlock in Washington, D.C., under the gloom of a budget impasse and continued low employment numbers, why many market professionals might not have the most rose-colored outlook.
Nearly 44 percent those bearish 197 respondents saw the economy’s main problem as jobs, or, more specifically, the lack of jobs. “The market is waiting and watching to see where the volatility shakes out,” one perspective stated. “This is a more difficult time in predicting the future than 2008 because it could go either way.”
And the DLA Piper survey from that same year – “by coincidence, right at the same time as the Lehman Brothers collapse,” Jay Epstien, chair of the U.S. practice for DLA, said – was even more glum, with 90 percent of respondents that year claiming the economy was heading in a bad direction. Turns out they were right, but where does the bottom lie?
“The results were a bit more pessimistic than I would have estimated,” Epstien told Commercial Property Executive. “I think they were influenced by late August and early September. If it went out in July, I think it would have been 50-50 [bearish to bullish].”
The market certainly took a negative turn towards the end of the summer, whereas previously it has been coasting towards a recovery with low interest rates and pockets of strong real estate markets, most notably in New York City and Washington, D.C. But, as those bearish respondents who cited “lack of jobs” as the main problem, employment numbers bring uncertainty into the market.
“While I don’t think one jobs report can tell the whole picture,” Epstien said, “but jobs are a major part of why we sit where we are. If we continue in a jobless recovery, that slows the ability of real estate markets to get a sense of normalcy.”
That normalcy is going to play a major role in moving forward. If the commercial real estate market is self-correcting enough and, if the 32 of 83 respondents – nearly 39 percent – who are confident in a bullish outlook are correct, we’re going to be looking at a good number of investment opportunities caused by that market correction.
But many respondents also see little action ahead, either in terms of interest-rate changes or in cap-rate fluctuation, because 74 percent and 67 percent, respectively, saw “no significant change” in those metrics.
Another significant agreement between the survey takers was on the topic of international markets. For the second survey in a row, the top three countries most attractive to foreign investment were, from positions one to three, Brazil, China and India. “Brazil coming out on top is a result of everything we’ve seen in the last 12 months,” Epstien said. “It’s hosting the World Cup [in 2014] and the Olympics [in 2016]. It’s an economy that is very strong and it’s a country that, to people in the States, appears to be very stable.”
Respondents were also aware of the fast trajectory of the CMBS market in the beginning of 2011. By the end of June, there had been more than $20 billion pumped through CMBS lenders and the sector looked to be gaining steam. “But then the market adjusted,” Epstien said. “Now, people are thinking that CMBS might not be as strong,” he said of the survey’s results: 47.5 percent of respondents think CMBS will do between $25 and $30 billion by year’s end, and 45.5 percent think the volume will reach between $30 and $40 billion.
To read more on the DLA Piper conference in Chicago, visit the Global Conference Summit website.