‘Divided’ Perception of Current Market Conditions

Real estate professionals diverge on their perception of current market conditions, though a significant share believe the market is in some stage of a downturn, the Royal Institute of Chartered Surveyors reported.

The RICS U.S. Commercial Property Monitor surveys real estate executives quarterly regarding both occupier and investor sentiment.

“Both in terms of occupiers and investors, there is a clear divergence of trends by sector,” the report said. “The outlook is sunny for the industrial sector, flat for office space and weak for retail–both prime and secondary.”

Overall, RICS’ Occupier Sentiment Index showed “modest” improvement in market conditions in most property sectors. Only the retail market weighed the composite score down. The Investment Sentiment Index held mostly steady during the quarter.

RICS noted “robust” interest among investors for industrial assets. “Prime industrial space is set for solid growth in rent expectations albeit secondary industrial rents are expected to have only a marginal increase,” the report said. “The Commercial Property Monitor projects prime and secondary industrial sectors to see the strongest gains in capital values over the coming year.”

Prime office assets are seeing modest demand increases from investors, RICS said. But occupiers see prime office rents as flat with marginally negative growth for secondary office space.

“The retail sector shows the weakest outlook on both sides of the market [occupiers and investors],” the report said. “It has seen the sharpest rise in the availability of occupiable space in the commercial sectors and landlords are increasing inducements to potential tenants. In fact, demand from occupiers in the retail sector has declined for the fifth consecutive quarter–though this trend is slowing.”

Similarly, the supply of property on the market for investment purposes was unchanged across sectors–except for retail, which has experienced five consecutive quarterly increase as investors continue to favor other sectors over retail. “Consequently, capital values for retail are likely to decline over the coming year, although only to a limited extent,” RICS said.