CPE Sentiment Survey Turns Gloomy; Capital Markets, Government Policies Named Long-Term Focus

Commercial real estate executives believe trends in the capital markets will have the greatest impact on the industry in the next five years, while government policies will pose the greatest challenge, according to the latest CPE 100 Quarterly Sentiment Survey. Their near-term impact was noticeably gloomier than in the first quarter.

Looking ahead to the next five years, commercial real estate executives believe that trends in the capital markets will have the greatest impact on the industry, while government policies will pose the greatest challenge, according to the latest CPE 100 Quarterly Sentiment Survey. The findings are among the conclusions of CPE‘s regular national poll of industry leaders.

Nearly half of executives surveyed—about 44 percent—predict that the financial markets will be the single most important factor for the half decade. Coming in a distant second were policies and regulations of federal, state and local governments, which were cited by 19 percent of respondents. Corporate mergers and general economic/demographic trends drew a little more than 10 percent each.

When you consider that policy coming out of Washington will directly impact recovery and the accessibility of capital, you get a clear idea what concerns our industry leaders the most, commented CPE associate editor Mike Ratliff, who coordinates the Sentiment Survey.

When it comes to future hurdles facing the industry, however, the government ranks as the top concern. More than four out of 10 executives named federal, state and local policies and regulations as the No. 1 challenge for the next five years. The runner-up issue—adapting to rapid technological change—was the pick of 25 percent.

Turning to the near term, the CPE 100’s outlook was noticeably gloomier than it was in the first quarter. In the most recent survey, only 33 percent of respondents said that general business conditions will be somewhat better in three months than they are today. That marks a sharp drop from the first quarter, when 63 percent said they expected business conditions to improve. For the first time this year, some members of the CPE 100—20 percent—expect business conditions to deteriorate during the next three months.

May represented the third consecutive month of disappointing employment numbers and the second month of falling retail sales, Ratliff noted. As commercial real estate’s health usually lags that of the general economy, this slowdown should present itself over the next three months of industry activity.

About six out of 10 executives predict that the industry’s health will remain unchanged over the next three months—virtually identical to the results for the first quarter. However, the results reflect a growing sense of pessimism. Forty-two percent of those surveyed said that the market would be healthier in three months; only 20 percent agreed that the health of the commercial real estate industry would be somewhat better, and another one fifth say that conditions will be somewhat worse.

Expectations about company performance have also taken a dip lately. Only three months ago, 53 percent of executives surveyed said that their companies would be doing somewhat better. That proportion has slipped to 33 percent. Roughly half of those surveyed still believe that the performance of their business will be unchanged three months from now—53 percent today, as opposed to 47 percent previously. But another 13 percent now say that their companies will be performing somewhat worse in three months—a response that did not appear on the radar during the first quarter.