Renewed sense of optimism emerges around commercial real estate
What’s behind the jump in sentiment on real estate market conditions? Our chart explains the growing optimism and what it means for investors looking for income.
January 31, 2020 | 1 minute read
Commercial real estate (CRE) executives grew significantly more optimistic about the state of the CRE market late last year and expect another positive year in 2020, according to an RCLCO survey released last week.1
The percentage of survey participants who view CRE conditions better today compared to a year ago jumped by 20%, as the chart shows.1 RCLCO’s broader real estate sentiment index also rebounded, climbing back toward its longer-term average since the mid-2016 survey.1 The improvements partially reflect the upswing in the stock market last year, but also can be attributed to the constructive fundamental environment supporting the CRE market.
Real estate leaders believe we are currently in the “late stable” stage of the cycle, with retail closest to moving toward the “early downturn” stage.1
Yet, most participants foresee continued momentum within the CRE market this year, citing slow but steady economic growth and positive consumer sentiment. Easy monetary policy coupled with cap rates at or near long-term lows provides an additional layer of support, particularly for CRE debt. Low rates should promote strong demand for properties, while a low cap-rate environment highlights the important role of income to CRE total returns going forward.
In fact, the sudden return of volatility to the stock market this week may provide a good contrast to the slower-moving CRE market. Commercial real estate continues to benefit from conservative lending practices enacted in the decade since the financial crisis and sits today at a post-crisis low in CMBS delinquencies (just 2.3%).2 The recent rebound in optimism among CRE executives emphasizes the asset class as an attractive investment opportunity for investors seeking steady income and growth potential.