The national commercial real estate market received some disappointing news today as The Real Estate Roundtable?s Q3 Sentiment Survey predicted that commercial real estate and capital markets conditions appear to have weakened again and are not expected to improve much over the coming year. However, the survey did say there will be some pockets of strong activity and price appreciation in core gateway markets and in the apartment sector.
Whereas an overwhelming 74 percent of Q2 survey participants judged current conditions to be at least somewhat better than a year earlier, only 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.
Jeffrey DeBoer, roundtable president and CEO, said the following:
?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. 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 eurozone, it?s not surprising that commercial real estate executives? expectations for the year ahead are relatively lackluster.?
Reflecting renewed economic and political concerns, 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 (rising from 59 in Q4 2011 to 68 and 70 in the first and second quarters of 2012), 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 midyear, 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.
DeBoer said:
?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. 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.?
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