The commercial real estate market is expected to be strong through year-end.
"Our latest Sentiment Index finds commercial real estate industry leaders experiencing continued positive market conditions and cautiously predicting solid performance into 2019,” said Jeffrey DeBoer, president and CEO of the Real Estate Roundtable, discussing the results of the organization’s Q4 2018 Economic Sentiment Index.
“Concerns exist about interest rate and construction cost increases, as well as labor shortages. However, these concerns have not yet caused significant market disruption," said DeBoer. "With some exceptions,
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Jeffrey DeBoer[/caption]
supply and demand in major markets remains essentially in balance, and access to debt and equity remains strong. Disciplined, not aggressive, development and investment are the current watchwords of smart real estate executives.”
Key findings of the report are as follows:
- The Q4 index came in at 50, a two-point drop from Q3. Most suggest that current market conditions are positive and expect such conditions to continue into the new year. However, some responders continue to question, "How much longer can this last?"
- Responders pointed to the increase in costs for constructions projects and the corresponding decline in development returns as a concerning market factor. As a result, fewer responders were highly optimistic about market conditions in 2019 as yield becomes increasingly hard to find.
- For the first time in several quarters, a large proportion of responders are indicating a belief that asset values will start declining. However, pricing is expected to stay relatively strong for assets in major markets.
- Responders feel debt and equity capital are plentiful in today's market. Equity investors and lenders alike continue to show strong appetite for real estate.
Ninety percent of survey participants report Q4 2018 asset values today are "about the same" or "somewhat higher" compared to this time last year. Looking ahead, a minority of participants said they expect values to be "somewhat lower" one year from now with 55% of respondents seeing no significant value declines.
