Marcus & Millichap/NREI: CRE Investor Sentiment Slips

Commercial real estate investor sentiment is cooling gradually, the Marcus & Millichap/NREI Investor Sentiment Survey found.

The quarterly measure of investor sentiment slipped three points to 150 in the second quarter.

Marcus & Millichap First Vice President of Research Services John Chang said commercial real estate investor sentiment may have peaked in 2014, when the sentiment index reached 179. “That doesn’t mean that we won’t see it push upward again,” he said. “But right now, we are seeing a modest softening in investor perspective.”

Marcus & Millichap and National Real Estate Investor surveyed 616 commercial real estate investors, pension fund managers, developers, advisors, lenders and real estate investment trust executives. Respondents averaged $34.7 million in commercial or multifamily investments. The investors cited uncertainty about the Trump Administration, modest capital-market tightening, property price increases and the “mature” market cycle as the main reasons for their slipping sentiment.

Just under half of those surveyed said they expect construction levels to increase over the next two years, down from 56 percent who thought this way the quarter before. More than one-quarter said the likelihood of a recession over the next two years has increased over the last three months, up from 18 percent in the last survey.

Most respondents–57 percent–still expect Trump administration policies to benefit real estate values and investment activity, down from 65 percent who expressed that opinion just after the presidential election. Survey respondents noted less regulation and lower taxes–both personal and corporate–as policies that would most benefit real estate.

Rising interest rates were the top concern for survey respondents, followed by possible economic shocks. The Federal Reserve Board of Governors has raised interest rates three times since December. As a result, lenders have tightened their lending standards a bit, Marcus & Millichap Capital Corp. Senior Vice President William Hughes said. “But capital is still readily available across asset types and across geographies,” Hughes noted.