NEW YORK CITY—Continuing optimism is the topline concept when it comes to 2018, according to the CRE Finance Council (CREFC) 2018 Market Outlook Survey, issued Tuesday. Eighty-six percent of survey respondents said they anticipate a “neutral” or “positive” climate for business.
A slight majority of respondents—51.9%—expect the economy to perform essentially the same this year as it did the year prior, while 39% expect it to perform better. Driving positive sentiment are “a more benign regulatory environment, tax reform and the availability of capital,” according to CREFC.
Conversely, the survey finds that areas to watch include asset valuations, interest rate increases and continued deterioration in the retail sector. Respondents also expressed concerns over a black swan event and other geopolitical event risk.
“The commercial and multifamily real estate finance markets were solid last year, and our survey results show that CREFC members expect more of the same in 2018,” says Lisa Pendergast, executive director of CREFC. “Given the outlook for moderately rising rates and GSE and regulatory reform on the table this year, we are confident that commercial real estate will continue to perform well amidst an economy buoyed by tax reform and heightened job creation.”
In addition, respondents expect capital availability and borrower demand to remain strong through '18. In fact, the survey showed that they consider the availability of capital to have a largely “neutral” effect on their business performance this year.
Private label CMBS issuance is projected to total about $90 billion, consistent with 2017, although agency MBS issuance is expected to decline compared t0 last year. Balance-sheet lending is expected to hold steady (by 44% of respondents) or increase (35%). The majority of respondents (54% and 59%, respectively) believe borrower and investor demand for CRE/multifamily debt will remain about the same this year.
External factors such as government policy and regulation also influenced how industry leaders felt about the coming year. A smaller percentage of respondents said they expect government policy and regulation to have a positive impact on their businesses specifically than those who expect government actions to positively impact CRE in general (44.6% and 51.8%, respectively). “The market may see periods of volatility and, depending on how issues on the legislative front play out, there could be a number of meaningful changes,” says Raj Aidasani, director of research at CREFC.
Nearly two-thirds of respondents said we're at the peak of the current real estate cycle. That general sentiment also carries over into expectations about specific property types. Seventy percent said they expect office to perform at about the same rate this year as it did last year, with 18% predicting that the sector's performance will decline. A smaller majority (55%) expect multifamily performance to hold steady, while 34% expect it to be worse this year.
Retail real estate's uncertain future was reflected in the 70% of survey respondents who expect that we'll see poorer performance by retail properties in '18. A plurality of respondents (48%) said the same about hotels. The strongest sector, from the standpoint of performance expectations, would appear to be industrial: 54% expect that the sector's performance will improve this year, with another 45% expecting industrial performance on par with '17.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
