Survey: Confidence in CRE Flat from Q1

The ""Real Estate Roundtable's"":http://www.rer.org/ outlook for commercial real estate (CRE) remained ""modestly optimistic"" in Q2 even as public policy uncertainties cloud the future, the group revealed in its Q2 2013 Sentiment Survey.

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The survey's ""Overall Index"" reading stands at 69 in the most recent release, unchanged from the previous quarter and one point lower than the same survey last year. That score is based on the average of two indices: the Current Conditions Index (which read 71 for Q2, an increase of one point over Q1) and the Future Conditions Index (67 for Q2, unchanged). Figures above 50 represent positive trajectory.

According to the Roundtable, the Q2 index ""indicates that senior commercial real estate executives continue to see favorable trends in both values and capital availability in major gateway markets, but remain anxious about how a potential rise in interest rates and political uncertainty could worsen market conditions.""

""Commercial real estate executives are seeing increased interest in transactions outside healthy core markets, but that sliver of good news is mired in anxiety--centered on [COLUMN_BREAK]

whether the development of pro-growth policies could fall victim to political gridlock,"" added Jeffrey DeBoer, Roundtable president and CEO.

Though overall market sentiment is positive, many respondents expressed concern that general conditions could take a dip by next year. Seventy-five percent of those surveyed said real estate market conditions are ""somewhat better"" or ""much better"" than one year ago--a slight increase from the Q1 survey--but only 62 percent anticipate better conditions next year, a drop from 68 percent in the first quarter.

""There is a significant possibility that conditions a year from now could be meaningfully worse, particularly if interest rates start rising without real growth in the economy,"" said one respondent. ""This would be a dreadful scenario for real estate as rising financing costs would not be offset by occupancy and Net Operating Income gains.""

Most survey participants reported significant improvements in asset values compared to a year ago, and a majority believe they will rise further. According to the Roundtable, 82 percent of those surveyed said asset values in Q2 are ""somewhat better"" or ""much better"" than last year, a jump from 74 percent who said the same thing in the last survey. However, there was some fear that value gains have been driven by inexpensive capital, with one industry leader saying the market ""is starting to feel a bit bubbly out there.""

Financing conditions are also better compared to a year ago, though many respondents expressed the need for more buying opportunities to balance supply and demand in the new environment. Eighty-eight percent of leaders believe current conditions for both debt and equity are better than they were a year ago compared to 77 percent who answered the same way last quarter.