Industry Leaders Dial Back Expectations: Real Estate Roundtable

October 31, 2011
By Nicholas Ziegler, News Editor

While several surveys of late have generally said the economic outlook is improving — including last week’s Reuters / University of Michigan’s consumer-sentiment index and the Urban Land Institute’s exhortation to “be patient” — the commercial real estate executives at the Real Estate Roundtable have seen their outlook drop to its lowest point since 2009.

“For the first time in two years, a significant portion of respondents see conditions as worse than a year ago and predict a decline in the coming year,” said the report. Consensus is that the decline reflects myriad concerns: The pace of economic recovery, Washington’s ability to address fiscal- and tax-policy challenges and the long-term European debut situation, among others. After rising slightly at the beginning of the year and remaining at 77 out of 100 in the second quarter of this year, the overall index dropped significantly to 69 in the third quarter and then further to 59 in the current survey.

Calling the drop “a material shift in perceptions on current and future market conditions, property valuations and access to debt and property capital,” the survey underlined the uneven recovery seen for most of 2011.

“For much of the past year, we have been concerned about the uneven, or ‘bifurcated,’ nature of the commercial real estate recovery — and have focused on policy ideas to foster job growth and broaden this recovery beyond the urban ‘gateway’ markets,” Jeffrey D. DeBoer, Roundtable’s president & CEO, said. “Now, amid tremendous uncertainty on an array of federal policy issues, expectations are being dialed back considerably, and commercial real estate fundamentals are again under pressure, even in areas that had recovered significantly in terms of property values, pricing and access to credit and capital.”

The percentage of survey respondents who said debt availability is “much better” today versus one year ago shrank from 36 percent in Q3 to only 6 percent in the latest survey.  There was a corresponding spike  — from 2 percent in Q3 to 26 percent in Q4 — in the percentage of respondents who said debt availability today is “somewhat worse” than it was one year ago.  Looking ahead, more respondents in the Q4 survey said they expect debt availability to be about the same or somewhat worse next fall.

On the equity side, 77 percent of Q3 survey respondents said conditions “today” are at least somewhat better than one year ago.  In the latest survey, only 40 percent of respondents characterized current conditions as “somewhat” or “much” better than one year earlier.  As for future conditions, 14 percent more Q4 survey respondents expect equity availability one year from now to be “about the same.”

The Real Estate Roundtable’s report was based on a survey conducted from Oct. 3 – 12, 2011. The next report will be released in February 2012.