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Surveys Show Optimism for Commercial Real Estate for 2017

Surveys: CRE Leaders Optimistic About ‘Continued Boom’ in US Property Market Through 2017 and Beyond

Despite Economic and Regulatory Uncertainties, Most See Continued Growth in US Debt and Equity Markets
February 1, 2017

A pair of new surveys point to continued favorable market conditions for US commercial real estate this year, with a strengthening economy paired with improved property fundamental and ready access to capital shoring up the real estate expansion through 2017.

A survey by KPMG LLP of senior U.S. real estate executives further finds that uncertainties over President Trump’s tax and regulatory policies, rising interest rates and the threat of data breaches and other cybersecurity risks have not dampened bullishness among real estate owners and investors.

Fifty-two percent of real estate executives polled believe that improving real estate fundamentals in 2017 will be the biggest driver of their company’s revenue growth, while 91% of investors are bullish on access to equity capital, with 25% expecting an improvement in 2017 and two-thirds believing that the positive trend will remain the same.

“Although prices of Class A assets in the U.S. are high and yields are lower, the promise of reliable returns leads to sustained interest in the sector overall, especially when compared to other global markets,” noted said Greg Williams, national sector leader for KPMG’s Building, Construction & Real Estate division. “A growing US economy, coupled with healthy real estate fundamentals and strong access to financing and capital, make real estate leaders optimistic about a continued boom in the US market,”

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“A growing U.S. economy, coupled with healthy real estate fundamentals and strong access to financing and capital, make real estate leaders optimistic about a continued ‘boom’ in the U.S. market.”

KPMG anticipate continued growth in the open-ended and debt funds due to their stable yield, diversification, and higher levels of liquidity for open-ended funds, said Phil Marra, national real estate funds leader.

“We also expect to see an influx of new investment in real estate, both from existing investors as well as new entrants,” Marra said.

A recent survey of Commercial Real Estate Finance Council members finds that the real estate finance market to benefit from economic growth, the incremental nature of rising interest rates, low levels of new construction and ample availability of capital and credit to borrowers for new loans and refinancings.

Spreads on commercial mortgage-backed securities (CMBS) are likely to remain volatile in 2017, mainly due mainly to external factors such as geopolitical trends and potential contagion from other asset classes.

CMBS issuers have adjusted to new risk-retention requirements that took effect on Dec. 24, and portfolio lenders, private equity and a new generation of other lenders are stepping in to fill gaps and enable opportunity in the investment marketplace, said CRE Finance Council Executive Director Lisa Pendergast.

“Though there is some concern that we are nearing the peak of the current U.S. real estate cycle, valuations are generally holding with ample credit available for new loans and refinancings of maturing quality loans,” Pendergast said.

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