WASHINGTON, DC—Another indication that the current market cycle is near its peak comes from The Real Estate Roundtable's latest quarterly "Sentiment Index."

A growing number of participants predict asset values may be beginning to near the top of the cycle.

The Q2 Overall Index registered at 62, which, according to the Real Estate Roundtable, shows many investors acknowledge a significant recovery, but are questioning how much upside is left within the current real estate cycle.

Comments by participants included in the report further highlight this trend.

Said one: "Investors are concerned that we are late in the cycle and that investments made today may not turn out as well as planned."

And another: "We continue to see strong real estate capital flows without the fundamentals to back it up. One wonders how long this can go on, and we worry about the variables that could end this upward cycle. Demand for real estate is still strong, but we are exercising some restraint in making new investments."

And: "We are currently firing on all cylinders, but have very low return expectations, which makes me nervous. I hope my competitors use this great opportunity to lever up significantly so I can buy their assets in the next downturn."

Indeed, this theme is peppered throughout the comments included in the report.

"In my mind, we must be getting near the top of the cycle in terms of valuations and capitalization rates."

"As is typical of this cycle stage, pricing for many prime properties is now at levels which give insufficient weight to potential risks. Buyer beware!"

"There is concern that overbuilding of apartments in some areas will lead to reduced rents, and eventually lower real estate values."

"Asset valuations are very strong and may be reaching levels that cause buyers to pump their brakes a little bit."

Part of the reasoning is based on the US economy, with the less-than-certain trajectory of job growth and GDP.

On the other hand, US economic growth has been strong enough to support a robust commercial real estate market and the effects of that is expected to continue. Another participant noted that "we have had fairly strong and consistent economic growth, lower unemployment, very low interest rates, good liquidity, high transparency, and protection of property rights. All of these things still make US real estate very attractive."

Going forward, CRE executives will be looking at a number of macroeconomic and global developments including the economy's performance, the strength of the dollar, and global supply and inventory.

Despite the growing concern that assets are reaching a peak valuation point, respondents expect real estate prices to remain stable over the next 12 to 24 months

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Erika Morphy

Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.

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