CRE Growth Tapers in Q1; Outlook Holds

RICS’ Americas headquarters at One Grand Central Place in Midtown Manhattan. (Photo courtesy of Goldman Copeland)

NEW YORK CITY—The first quarter turned out to be modestly better for US GDP growth than previously thought, according to the Commerce Department’s newly revised figures, and in that vein RICS’ latest sentiment survey showed improvements across the board in Q1. Industrial led the way in terms of demand from both tenants and investors, according to the RICS Q1 US Commercial Property Monitor. This was the case especially in terms of tenant demand, where absorption outpaced a moderate increase in industrial space. Among investors, industrial space demand rose at the strongest rate and supply also was the tightest; RICS says; survey respondents reported no growth in the number of new properties coming to market. Only office saw any meaningful increase in supply, and that too was outpaced by tenant demand. The combination of demand increase and generally positive outlook for rent growth kept the RICS Occupier Sentiment Index in positive territory with a reading of +13 for Q1. However, this had moderated from +32 in the previous quarter. With regard to the investment environment overall for commercial properties, the RICS survey shows that investor demand growth moderated in Q1, with the sentiment index at +14 compared to +26 in Q4 2015, but the outlook for capital values remained firm. Survey responses show that capital values are expected to increase across all sectors over the next 12 months, at an average of 3%. Secondary retail markets are forecast to underperform, though. Regarding present conditions, 55% of survey respondents think their local markets are overpriced to some extent. However, that represents a decline from the previous quarter’s level of 61%. Putting US respondents’ sentiment into a global context is instructive when looking at perceptions of pricing and the state of the market. That 55% figure puts the US in 10th place worldwide in terms of survey respondents who consider their local markets overpriced, behind Qatar, Switzerland, Germany, Japan, France, Austria, Belgium, Singapore and China. On the question of whether the local market has reached its peak, US respondents came in fourth behind those of Japan, Germany and Austria and were nearly tied with their counterparts in the Czech Republic