Commercial Real Estate: Survey reveals less optimism about CRE growth than in past years

Slightly more than a third of the respondents in a recent poll believe the commercial real estate (CRE) market is experiencing a gradual slowdown in transaction volume and price increases.

The poll was taken of participants in a webcast, known as the Deloitte Dbrief, to showcase the results of the Expectations & Market Realities in Real Estate 2019 – Uncharted Territory report, which was produced by Situs RERC, Deloitte and the National Association of Realtors and released in February. Nearly 4,000 people participated in the poll, which was conducted on Feb. 5. The webcast has been conducted since 2011. Nearly 5,000 people attended the webcast this year.

In terms of the CRE market, about 9.6% of the respondents believed that robust transaction volume and price appreciation would continue in the CRE market in 2019, down significantly from 19% in 2018. The highest number of respondents — 34.0% — believed that the CRE market was experiencing a gradual slowing of deal volume and price increase. That’s comparable to 34.8% in 2018.

Only 4.3% of the respondents believed that the CRE market would experience a deceleration in 2019, but that was up from 2.7% in 2018. Some 19.9% of the respondents predicted a flattening or sluggish transaction pricing in 2019, similar to the numbers in 2018. As with 2018, about 17% said they didn’t know what to expect in 2019.

In addition to the survey, the Expectations report featured an in-depth look at commercial real estate trends. Some highlights, citing data from Real Capital Analytics (RCA), include:

• Total office volume increased 15% year over year (YoY) in 3Q 2018. The majority of the transacted volume was in the suburban office sector, which was on par with suburban office volume one year ago. CBD office, on the other hand, increased 58% YoY, but made up only 35% of total transaction volume.
• Overall industrial transaction volume in 3Q 2018 remained steady from one year ago, but ramped up from 2Q 2018 by over 21%. Warehouse transactions continued to far surpass flex in terms of dollars transacted and number of properties, making up over 80% of total dollar volume in 3Q 2018.
• Volume of retail properties totaled approximately $63.8 billion year to date (YTD) as of 3Q 2018, which represents a 30.7% increase in retail property sales from $48.8 billion in the same period in 2017.
• Deep into the latest CRE cycle, apartments continue to exhibit strength. Following the first year of decline since 2009, US apartment volume was on pace to rebound by the end of 2018. A total of $120.1 billion of significant apartment properties were sold in the first three quarters of 2018, representing a YoY increase of 12%.
• Hotel performance held steady in 3Q 2018 as fears of oversupply of new construction faded. With supply and demand at near equilibrium, investor confidence has improved to the extent that the hotel sector was one of two sectors posting transaction volume growth in October. Over the last four quarters, there has been a consistent improvement in transaction volume, led primarily by single-asset deals in non-major metro markets.

Based on fundamentals, which property types do the Dbrief poll participants believe offer the most favorable investment opportunities? Find out in next week’s Newswatch.

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