WASHINGTON, DC–Even though the commercial real estate industry is closely watching proposed tax reforms and reserving predictions for the coming year until they have greater clarity, CRE executives predict that market fundamentals will stay strong, according to The Real Estate Roundtable's Q4 2017 Economic Sentiment Index.
“Recent tax reform efforts in Congress are significant steps toward tax reform, yet a final bill that may eventually emerge from a bicameral conference must encourage capital formation and help maintain the strength of our capital markets,” said Roundtable President and CEO Jeffrey DeBoer, in a prepared statement.
Read Real Estate Roundtable Explains Congress' Tax Reform Proposals
That said, executives cannot be too worried — the Roundtable's Q4 2017 Sentiment Index registered at 53, a three point increase from the last quarter. This quarter's Current Conditions Index of 53 increased two points from the previous quarter and the Future Conditions Index of 52, increased by four points from the previous quarter.
The index found that 2017 has been a positive year for the industry and that debt and equity capital remain widely available, DeBoer said.
Still, there are signs of caution from executives beyond the issue of tax reform; cycle timing has become a concern and it appears that the CRE industry has entered a stage of watchfulness. In fact many respondents cite difficulty sourcing new equity commitments from limited partners — something that can be a challenging undertaking in any environment — and point to the market's wariness of cycle timing as exacerbating the situation.
The survey respondents also said that high quality assets in core, urban locations continue to be aggressively priced, but that there are good deals still to be found. More broadly, real estate pricing is still seen as attractive relative to other asset classes.
Thirty-nine percent of survey participants report Q4 asset prices today are “somewhat higher” compared to this time last year, suggesting primary markets are holding strong with the broad availability of debt and equity in the market. However, with 54% of respondents said they expect values to be “about the same” one year from now, pricing may remain steady throughout the course of the next year.
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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.
