Survey: CRE Executives Cautious About Market Recovery

Despite the commercial real estate market's ""gradual, uneven recovery,"" industry executives remain wary about the future as job creation and various uncertainties threaten to slow down property value gains, the ""Real Estate Roundtable"":http://www.rer.org/ reported in its Q3 Sentiment Survey.

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According to the Real Estate Roundtable, the latest survey continues the ""basically flat"" trajectory of the past several quarters, with the Current Conditions index staying at 71 and the Overall and Future Conditions index each rising a single point to 70 and 68, respectively.

""Today's survey indicates a commercial real estate sector and national economy stuck on a plateau of recovery--certainly improved since the worst days of the recession, but not moving forward in any robust way,"" said Jeffery DeBoer, president and CEO of the Real Estate Roundtable. ""The slow pace of macroeconomic recovery is directly tied to the 'flatlining' of expectations in our industry, which is why The Roundtable continues to press for an array of federal policies aimed at unleashing investment and job creation.""

While the index has been largely flat from quarter to quarter, a majority of respondents in the third-quarter survey said they view market conditions as having improved ""at least somewhat"" over the past year (77 percent compared to Q2's 75 percent). In addition, the number of participants expecting better conditions in the next year grew to 65 percent from 62 percent in last quarter's survey.

Respondents also noted increased planning and construction in asset classes outside the multifamily segment and greater investor interest outside of ""red hot"" metros such as New York, San Francisco, Dallas, and Houston.

At the same time, however, anecdotal comments showed participants are maintaining their level of caution, with one remarking, ""General conditions are good but not terrific. People are still incredibly cautious with their growth plans; everyone is planning on growth, but they are hesitant to take a leap of faith in this economy.""

Discussing interest rates, respondents offered mixed views. While many expressed pointed to strong capital availability and increased optimism as good signs for property values, numerous respondents said they are concerned about rising rates and their potential to slow the recovery of asset values.

""Although the Fed is expected to maintain its highly accommodative monetary policy for the foreseeable future--signaling this week that 'tapering' of the 'QE3' program is now less imminent--the risk is that interest rates could begin to rise before property owners' net operating incomes (NOI) have caught up with increasing job creation,"" the Roundtable said in a release.

The group also noted that artificially low rates are contributing to artificially high asset prices in some areas--meaning an increase in interest rates could create a mess.