REBNY: Broker Confidence Falling Due to Leasing, Financing Concerns

NEW YORK CITY—Real estate brokers in New York City, while still positive, are a little glummer about market conditions going forward, according to the latest Real Estate Broker Confidence Index released by the Real Estate Board of New York.

REBNY reports that was the confidence index calculated out to a 5.78 out of 10, a decrease of 1.21 since brokers’ confidence was last surveyed concerning their views about the fourth quarter of 2017.

The overall decline in the broker confidence index was due to brokers’ concern for future leasing and financing conditions in both the residential and commercial real estate markets, REBNY states. However, several brokers surveyed note that despite recent increases, interest rates are still low when compared to years past.

“Residential and commercial broker confidence was decidedly more upbeat in the fourth quarter of 2017, but market confidence in the first quarter of 2018 remained positive overall,” says REBNY president  John H. Banks. “Though the pace of transactions has slowed, REBNY brokers are seeing movement among well-priced inventory. Prices are continuing to undergo a natural correction with new developments and a more competitive leasing environment.”

The Commercial Broker Confidence Index in the first quarter of 2018 was 6.02, a decrease of 1.39 since brokers were surveyed about the fourth quarter of 2017 when they expressed confidence in their expectations of the recently passed federal tax reform, REBNY states in its report. While down, the Commercial Broker Confidence Index is still 0.74 higher year-over-year, up from 5.28 in the first quarter of 2017.

The decline in the current Commercial Broker Confidence Index was attributable to concerns about the leasing and financing market six months from now, according to the report.

Brokers’ assessment of the current leasing market in the first quarter of 2018 showed confidence with responses indexed at 6.49, which dipping slightly by 0.23 since the fourth quarter of 2017. One office-leasing broker attributed the still very positive current confidence level to the effects of tax reform, telling REBNY in its survey that “Tax cuts are already leading to hiring and expansion.”

Another commercial broker lamented on the challenges in commercial leasing, saying, “While the commercial rent tax has been reduced, it needs to be eliminated for retailers.”

The Residential Broker Confidence Index was 5.54, a decrease of 1.03 since brokers were surveyed about the fourth quarter of 2017. However, unlike commercial brokers, residential broker confidence, while still positive, has been trending downward since last year with the exception of a noticeable uptick in the fourth quarter of 2017. Meanwhile, confidence surrounding brokers’ expectations of the effects of the federal tax reform have leveled off, REBNY states.

The dip in the Residential Broker Confidence Index in the first quarter of 2018 was attributable in part to the question that asked their assessment of the rental market six months from now. These responses were indexed at 5.01, a decrease of 0.53 since the fourth quarter of 2017.

“In rentals, concessions seem to be at an all-time high and I’m curious to see how that will affect the summer season. Renters are asking more and more whether there are ‘any concessions’,” said one residential broker.

Residential brokers also revealed some uneasiness about residential sales financing. Concerns about the current financing market were indexed at 7.17, a decline of 1.59 since the fourth quarter of 2017. The belief that the residential market benefited from tax reform boosted confidence in the fourth quarter of 2017, but recent broker responses in the first quarter of 2018 suggest they have returned their focus to actual market conditions.

REBNY cited one residential broker’s survey response, which indicated perhaps why the federal tax reform legislation may no longer be a market stimulus—“Tax changes have not had a noticeable effect on demand in the first three months of the year.”