Economy Watch: Another Guardedly Optimistic Report on CRE

Conditions will remain generally strong and balanced this year.

On the heels of a relatively optimistic report on the near-term future of commercial real estate by NAR and its partners comes another report on Tuesday, this one by the Real Estate Roundtable,  reaching a similar conclusion: guarded optimism. Namely, that conditions will remain generally strong and balanced this year, with capital accessible and non-gateway markets continuing to improve.

Yet future expectations remain cloudy because of worries about global economic weakness, financial market volatility and falling oil prices, said the respondents to the first quarter Sentiment Survey by the Roundtable. The overall Sentiment Index slid again this quarter, from 57 in the fourth quarter of last year to 50 in the current one. Of greater concern, perhaps, is the index’s 20-point decline since late 2014.

The survey’s Current-Conditions Index posted an even sharper drop—32 points—over the same five quarters. The Future-Conditions Index is now at 45 points, down from 52 in the previous quarter (and down 20 points since the Q4 2014 survey).

Although a majority of survey respondents said asset prices had increased in the past year, almost an equal number said they expect generally flat or “somewhat lower” valuations a year from now (45 percent and 41 percent, respectively—at least in part due to rising interest rates. Some noted increased inflows of private capital into both debt and equity markets, as well as concern about monetary policymakers’ ability to manage renewed U.S. economic weakness.