Optimism Improves Among CRE Execs, Despite Uncertainties
- Apr 24, 2017
The U.S. CRE market is looking at a rising level of confidence, stiffer competition from single-family residential for the nation’s housing dollar, and concerns over rising prices and falling cap rates, according to the eighth annual Akerman U.S. Real Estate Sector Report, released last week.
Since the U.S. presidential election, the report from U.S. law firm Akerman LLP indicates that 53 percent of investors and lenders are more optimistic about the 2017 outlook for the U.S. CRE market, compared to last year’s 38 percent. This increased investor confidence arises from the prospects of deregulation, tax reductions and stronger economic growth.
About 64 percent of real estate executives interviewed after the election say the Trump administration’s agenda will have a moderately or significantly positive effect on the industry. This number is up from 54 percent who were bullish about the pro-business presidential candidate during the 2016 campaign.
But this bullishness is tempered by uncertainties over a rising interest rate environment and the unintended consequences that policy changes could have on the U.S. economy, along with rising purchase prices, the risk of reduced cap rates and higher borrowing costs.
“As 2017 unfolds, industry executives are increasingly optimistic about the state of the U.S. commercial real estate market,” Richard Bezold, chair of Akerman’s Real Estate Practice Group, said in a prepared statement. “There are headwinds, but as we move into a deregulated environment, we expect less restrained capital to pursue opportunities actively and aggressively. Local market knowledge and innovative investment strategies will continue to be the key differentiator for successful real estate investors.”
Here are the major trends highlighted by the report:
For the first time since the report’s launch in 2010, CRE leaders predict that single-family homebuilding will outpace multifamily development. Investors and lenders anticipate an upswing in suburban housing development that will continue to rival walkable, sustainable urban centers. Nonetheless, a majority of investors agreed that the preference for a live-work-play lifestyle in a compact city center is one of the top trends affecting U.S. real estate.
Though the Trump administration’s infrastructure plans remain unclear, survey participants expect that public-private partnerships, tax credits and other innovative financing are likely to play prominent roles this year. Furthermore, CRE executives believe cities are evolving toward an infrastructure framework that takes into account sea level rise, the desire for a low carbon footprint, and technological advances such as next-generation vehicles.
As the Trump administration plans to reduce financial services regulations to allow for greater capital formation, real estate executives see banks remaining the main source for CRE debt or equity in 2017, with foreign investors and private equity ranked second and third, followed by REITs, insurance companies and pension funds.
Despite the strengthening of the U.S. dollar, 42 percent of real estate executives believe that foreign investors will lead debt/equity financing this year, with China is expected to be the dominant source of foreign capital across all real estate sectors.
As bricks continue to give way to clicks on the retail side, real estate executives predict once again that industrial, driven by demand for warehouses and fulfillment centers, will be the third most active sector for real estate investment. Accordingly, retail dropped to last place in the Akerman Report.
Akerman clients and other top real estate executives across the United States contributed to the report through 200 one-on-one interviews during the fourth quarter of 2016.