Commercial real estate executives maintain cautious optimism for economic growth despite U.S. tax policy uncertainty

Commercial real estate executives expect market fundamentals will hold strong throughout the year despite tax policy uncertainty in Washington, according to The Real Estate Roundtable's fourth quarter 2017 Economic Sentiment Index.

“Recent tax reform efforts in Congress are significant steps toward tax reform, yet a final bill that may eventually emerge from a bicameral conference must encourage capital formation and help maintain the strength of our capital markets,” said Jeffrey DeBoer, Roundtable president and CEO. “As our fourth quarter index shows, 2017 was a positive and productive year for our industry. Asset values are high, and debt and equity capital remain widely available.”

The Roundtable's fourth quarter 2017 Sentiment Index registered at 53 — a three point increase from the last quarter. [The Overall Index is scored on a scale of 1 to 100 by averaging Current and Future Indices; any score over 50 is viewed as positive.] This quarter's Current Conditions Index of 53 increased two points from the previous quarter. This quarter's Future Conditions Index of 52, increased by four points from the previous quarter.

The report's Topline Findings include:

• Despite the fact that fundamentals continue to hold strong, the commercial real estate industry appears to have entered a period of caution driven by concerns regarding cycle timing.
• Most do not expect current real estate market conditions to change materially in the near-term. That said, the industry is closely watching proposed tax reforms and reserving predictions for the coming year until greater clarity is achieved.
• High quality assets in core, urban locations continue to be aggressively priced. However, many still suggest that there are good deals to be found. More broadly, real estate pricing is still seen as attractive relative to other asset classes.
• Many respondents cite difficulty sourcing new equity commitments from limited partners. While this has always been perceived as a challenging undertaking, the market's wariness of cycle timing is exacerbating the difficulty.

Approximately 39 percent of survey participants report fourth quarter asset prices today are “somewhat higher” compared to this time last year, suggesting primary markets are holding strong with the broad availability of debt and equity in the market. However, with 5 percent of respondents said they expect values to be “about the same” one year from now, pricing may remain steady throughout the course of the next year.

DeBoer added “The commercial real estate industry is a positive contributor to America's economy. As Congress continues to work toward comprehensive tax reform that supports healthy and balanced real estate markets, the commercial real estate industry should be well-positioned to put more people to work as business investment accelerates and the broader economy improves.”

Data for the fourth quarter survey was gathered in October by Chicago-based FPL Associates on The Roundtable's behalf.  For the full survey report, visit www.rer.org/q4-2017-sentiment-index/