RCLCO: CRE Market Sentiment Slipping

CRE executives’ market sentiment has decreased since last summer and is likely to continue to slip, said RCLCO, Washington, D.C.

The RCLCO Real Estate Market Sentiment Index decreased from 68.0 in June 2018 to 49.2 currently, said RCLCO Managing Director Len Bogorad, who wrote the report with Analyst Maury Winter.

“Looking ahead, real estate is expected to experience gradually declining market conditions over the next 12 months,” Bogorad said. He noted the index could drop to 41.5 on its 100-point scale by then.

But the current figure represents an increase from the 37.5 index score seen six months ago. In the year-end 2018 survey, the stock market was declining and significantly more respondents predicted a decline than an improvement. Since then, the stock market has bounced back and sentiment has improved noticeably, RCLCO said. The number of respondents that predict a decline over the next 12 months and those predicting improvement are much closer together than six months ago and nearly four in 10 respondents now expect real estate market conditions to remain unchanged over the next 12 months.

“While predictions for the future are more pessimistic than they were a year ago, this supports the widely held belief that while an economic downturn is approaching, it is probably not imminent,” the report said, noting nearly 9 out of 10 respondents said they believe a real estate downturn will not occur until 2020 at the earliest and almost six in 10 said they do not expect a downturn until at least 2021. “The next downturn is considered to be much less imminent than [it seemed] six months ago,” RCLCO said.

Respondents said most product types remain firmly in the real estate cycle’s “late stable” phase. “The product types not yet in the ‘late stable’ phase are on the cusp between ‘early stable’ and ‘late stable’,” the report said. Respondents indicated that several product types will likely move past the peak and into the “early downturn” phase within 12 months.

When the next downturn occurs, most respondents–70 percent–indicated a trade war or a global economic slowdown will likely be the cause, RCLCO said.