CPE 100 Quarterly Sentiment Survey: Executives Eye 2016 as Peak Year; M-F Sector Still Rules

Almost half of the executives surveyed said that peak asset values and transaction volume across property types are still two years away. In the near term, most industry leaders expect stability rather than dramatic improvement.

The best is yet to come in the current real estate cycle, according to the results of the latest CPE 100 Quarterly Sentiment Survey, which predicts that the next investment peak will be in 2016. Meanwhile, the multi-family sector continues to win a vote of confidence from industry leaders, even after several years of robust development and investment.

Nearly half of the executives surveyed—46 percent—said that peak asset values and transaction volume across property types are still two years away (see chart below). That was double the number predicting 2015 to be the strongest year for investment activity, with just 15 percent of the CPE 100 eyeing 2017 as the best year for commercial real estate investment in the current cycle. The CPE 100 is an invited group of industry leaders representing a wide range of business categories.

“While we are now well into the current economic cycle, businesses are still ramping back up and the amount of development is increasing but at a very controlled rate,” observed CPE editorial director Suzann Silverman. “I’d put us at the top of the seventh inning.”



Investors are flocking to a variety of asset categories and geographic markets these days. But the multi-family sector, which has already enjoyed a long run as a favored property group, is not giving up that spot for some time to come, according to the CPE 100. In the latest survey, 64 percent of respondents tagged multi-family as most likely to “show continued staying power in terms of its performance and appeal to investors.” The industrial sector, which has also drawn admiration for its steady performance, took second place with 21 percent.

In this largely upbeat period for investment and development, a majority of respondents are concerned that the lessons of the Great Recession are being unevenly applied. Asked to size up the actions of investors, developers, lenders and advisors, 86 percent agreed that “although most stakeholders are proceeding wisely, some are being insufficiently prudent in their investment, development or lending decisions.”

Aware that neither the best of times nor the worst of times go on forever, savvy players are already getting ready for the next rainy day, noted CPE senior associate editor Mike Ratliff, the coordinator of the Sentiment Survey. “Although there is agreement that the current up-cycle still has some legs, smart investors are beginning to refine their portfolios and ensure that there is adequate cash on hand to take advantage of the next downturn,” he said.

Improvement vs. Stability

In keeping with the generally favorable view of the investment climate, a decisive majority of executives remain upbeat about the outlook for their own businesses. Seventy-one percent said that they expect their firms to be performing somewhat better in three months. That is the second-highest number since the debut of the Sentiment Survey in early 2012, and ranks behind only the 75 percent who gave a similar response during the second quarter of this year.

Given that confident outlook, responses to the Sentiment Survey’s other questions are intriguing, if not surprising. During the first and second quarters, at least 64 percent predicted that general business conditions would be somewhat better in three months. As recently as the second quarter of this year, 58 percent said that the health of the commercial real estate industry would be somewhat better in three months.

In a reversal of that trend, only about 36 percent of respondents were expecting improvement in business conditions and the industry’s health. But stability is on the radar of most executives: Sixty-four percent predict that both business conditions and the real estate industry’s health will stay unchanged for the next three months, which seems to reflect an expectation of continued solid performance by the economy and the industry, at least in the near future.