WASHINGTON – Aug. 3, 2012 – Commercial real estate market and capital conditions appear to have weakened again and aren’t expected to improve much over the coming year, except for pockets of strong activity and price appreciation in core “gateway markets” and the multifamily segment, according to The Real Estate Roundtable’s Q3 Sentiment Survey.
While 74 percent of Q2 survey participants judged current conditions to be at least somewhat better than a year earlier, a smaller 60 percent expressed such views in the latest survey. Looking ahead, the percentage of commercial real estate executives who expect conditions to be better one year from today dropped from 69 to 58 between Q2 and Q3.
“Our latest survey underscores the fragility and unevenness of the commercial real estate recovery – which closely tracks the pace of the broader U.S. economic recovery and which remains limited to top-notch assets in major metro markets,” said Roundtable President and CEO Jeffrey DeBoer.
“Given the pervading sense of uncertainty hanging over the economy, the elections, looming budget and tax issues awaiting action on Capitol Hill, increasingly complex and overlapping regulatory burdens, and escalating worries about the Euro zone, it’s not surprising that commercial real estate executives’ expectations for the year ahead are relatively lackluster.”
All three indices in The Roundtable’s Sentiment Index fell since the last survey, conducted in April. The overall index, which early this year began to rebound from a sharp drop in late 2011, slid to 63 in the latest survey.
Similarly, the current index was on a positive trajectory in the first half of 2012, rising from 66 to 71 in Q1 and Q2, respectively – only to fall back to 64 in the latest survey.
The hints of cautious optimism that emerged in the January-February survey (producing a future index value of 70) began to evaporate by mid-year, when the Federal Reserve downgraded its projections for U.S. economic growth after three consecutive months of disappointing jobs data. With CRE executives recalling last year’s economic roller-coaster and expressing concern about a potential repeat of similar shocks this year, the future index tumbled from 70 to 69 to 62 over the first three quarters of this year.
“Commercial real estate continues to face pressure from underlying economic problems, along with an erosion of property values and equity throughout much of the country, and a massive amount of loans coming due,” DeBoer said. “This survey confirms that policy action is needed to restore a climate for job creation, to spur long-term business investment, and to help bridge the equity gap hindering the refinancing of hundreds of billions in maturing commercial mortgages.”
In the latest Sentiment Survey – on both debt and equity availability – fewer respondents saw current conditions as better than those of a year ago; there was a corresponding increase in the percentage of respondents who felt debt and equity conditions were about the same or somewhat worse than a year ago. As for future conditions, there was a similar drop in the percentage of respondents who expect better conditions one year from now – with a corresponding increase among those who expect little change (or slightly worse conditions) by this time next year.
A similar dynamic appeared on questions regarding future expectations about asset values. Specifically, there was a 16 percent decline (from Q2 to Q3) among survey respondents who believe property values will increase at least somewhat by this time next year, and an 18 percent increase among those who believe prices will stay about the same or worsen somewhat.
© 2012 Florida Realtors®
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