DLA Piper: Bearish CRE sentiment rises among executives

Real estate executives are feeling more skittish about the state of the market, according to DLA Piper’s latest State of the Market Survey.

The report, released Monday, showed that executives are growing more cautious about the outlook for real estate. The majority surveyed by the law firm was still optimistic: 62 percent of respondents said they were bullish about commercial real estate over the next year, a drop from the 89 percent who responded positively in the last survey, published in September 2014.

“In everything we read and everything that happened in the first quarter – drops in volumes of transactions, a little lockup of the commercial mortgage backed securities market – overall it wasn’t a surprise that (sentiment) came down from the peak of 18 months ago when velocity was high,” Jay Epstien, the firm’s global real estate practice co-chair, told PERE.

Among those who responded positively, 40 percent cited the continued strengthening of the US economy as the primary reason for their market confidence. Epstien highlighted low unemployment numbers, an overall healthy stock market, and strong rental rates as indicators of a robust economy. Meanwhile, a quarter of the bullish respondents said the abundance of debt and equity capital available for investment gives them confidence in the real estate market.

On the other hand, nearly half of the bearish respondents chose continued volatility in domestic and international stock markets as the primary rationale for their lack of confidence, while 14 percent picked political uncertainties in the US in light of the upcoming 2016 presidential elections. Epstien said one advisor who works with foreign investors said that she has seen more caution recently among her clients, with investors hesitant to deploy capital given an unpredictable election cycle.

Despite some growing concerns about the outlook for real estate, Epstien framed overall sentiment as “cautious optimism,” with little concern about overbuilding or a real estate bubble that mirrors the last cycle.

“The analysis and strength of the market is based to a large degree on the enormous, abundant flow of capital, and everyone’s pretty confident that it remains,” he told PERE. “With a few exceptions asset class-wise, the supply/demand equation remains in balance, too.”