CRE Execs Optimistic About Present But Have Qualms About Future

The Real Estate Roundtable’s Q3 Current Conditions Index has reached the highest level in its 13-year history with a rise of 7 points from the previous quarter to 85. But uncertainty about the recovery from the pandemic led the Future Condition Index to decline by 4 points to 71.

The perspectives come from CEOs, presidents, and other top commercial real estate industry executives.

In the poll, the leaders cited a continued abundance of available debt and equity capital, which has led to significant amounts of capital sitting on the sidelines waiting for attractive deployment opportunities. One of the executives quoted in the report said industrial is going gangbusters on both sides—tenant and investor—with absurd amounts of capital seeking any quality asset. Another C-suite member expressed surprise that industrial cap rates have gotten tighter and lower, forming a bubble from capital that is available, but fundamentals seem to back it up. For office, respondents noted there was investment demand but a long-standing issue was in the way of sales. “In the office sector, if sellers would give a little, there would be a lot of activity, however we see separation between bid and ask,” one respondent said. 

Their optimism about the present comes as asset classes with durability or the perception of durability such as high-quality multifamily, long-term net lease office, and industrial have all hit record levels, while certain sectors and regional markets (in particular, those relying heavily on mass transit) have yet to fully recover, the report said.

The speed of the economic recovery compared to only six months ago has provided more clarity and certainty for specific asset classes including industrial, multifamily and single-family suburban with the biggest looming question marks being the impact of employees returning to the office and rising inflation risk, the survey noted

Looking at residential, an executive gushed: “The housing market—everywhere from single-family to multifamily—has never grown faster than it is growing right now. The strength is broad-based across sectors and includes urban areas that were affected heavily by COVID but are rapidly recovering and even surpassing pre-pandemic 2019 rent occupancy levels.”

Expressing some of the qualms about the future because of the uncertainty about the long-term impact of Covid in the recovery, a respondent to the poll said it’s not the fear of COVID keeping people out of the office, it’s that people are comfortable at home. 

Viewing the performance of asset classes, a manager reported deals are continually going above the brokers’ initial price with multifamily continuing being the most attractive alongside industrial, but hotel auctions have shown rising pricing.