Muted Optimism Marks CPE 100 Quarterly Sentiment Survey

Secondary markets are expected to shape investment.

Secondary Markets Expected to Shape Investment 

By Paul Rosta, Senior Editor

As first-quarter results filter in from around the real estate industry, executives continue to take a cautiously upbeat view of business prospects, according to the latest CPE 100 Quarterly Sentiment Survey. Three months into 2013, 83 percent of the industry leaders surveyed expect slow but steady growth for real estate investment this year. The findings are among the highlights of the year’s first quarterly survey of the CPE 100, a national group of real estate leaders representing a broad spectrum of industry business areas.

“While the general economic recovery might downshift this summer due to sequestration and transparency issues in Washington, commercial real estate fundamentals should continue to improve, as they have for the past 12 quarters,” said CPE Senior Associate Editor Mike Ratliff, who coordinates the Sentiment Survey.

Competitive financing terms were cited by 42 percent of respondents as the trend that will most strongly influence capital markets and investment this year. Another 33 percent felt that stepped-up investor attention to secondary and tertiary markets will have the greatest impact. That impression could result from a perceived shortage of high-quality supply in the most desirable markets. As investors search for yield, declining cap rates for top-tier properties in primary markets may also make them more open to alternatives.

Continuing a pattern of recent years, executives hold multi-family properties in high esteem. About four out of 10 named the sector when asked to name the category holding the most promise for development in 2013. Industrial assets came in second, earning support of one third of respondents. “Industrial space is heating up, thanks to an uptick in manufacturing and the demand for well-located distribution space,” Ratliff said. “E-commerce continues to grow, and Amazon, eBay and Walmart are all piloting same-day delivery programs. If the trend catches on, investors are likely to be seeking out distribution space close to the major urban markets.”

The CPE 100 Sentiment Survey’s snapshot of economic impressions remains cautiously optimistic, if reflective of today’s volatile conditions. Only half of survey respondents said they think that general business conditions will be at least somewhat better three months from now. That marks a decline from one year ago, when 63 percent of the CPE 100 looked forward to a short-term improvement in business conditions.

According to 41 percent of those surveyed, the health of the commercial real estate sector will improve during the next three months—findings virtually identical to one year ago. And about six out of ten executives agree that their own business will be in better shape in three months than it is today. At this time in 2012, 53 percent of executives said that their business would be performing better in three months, and 47 percent predicted that company performance would be unchanged.