CRE Executives ‘Cautiously Optimistic’
Commercial real estate executives remain cautiously optimistic about the U.S. CRE market despite concerns about a possible recession and global trade conflict, DLA Piper’s Global Real Estate State of the Market survey reported.
DLA Piper asked CRE executives about their optimism for and apprehension about the upcoming 12 months. Most respondents fell in the six- to seven-point range on a 10-point scale with 10 being bullish, which DLA Piper called a cautiously optimistic outlook. Nearly half the survey respondents cited the U.S. economy’s present strength and 43 percent cited an abundance of available investment capital as their primary reasons for confidence in the CRE market.
DLA Piper U.S. Real Estate Practice Chair John Sullivan called the continued optimism “encouraging,” but noted the survey found growing caution. “This year’s survey demonstrated that, despite a slowing global economy, the U.S. CRE market continues to grow, spurred in part by evolution within the industry,” he said. “Some of the opportunities created by this evolution are innovative, new technologies that are changing CRE and attracting investors into the market.”
More than a third of survey respondents with bearish sentiments cited domestic or international political uncertainty as the primary reason for their pessimism and ranked the inevitable end (or approaching end) of the current economic cycle as their second-largest reason for concern. Other reasons for bearishness ranked significantly lower, including low cap rates, reduced foreign investment and decreasing investor appetite.
The most active real estate investors in 2020 will likely be private equity funds and pension funds/endowments, DLA Piper said.
The report said technology is having a “meaningful impact” on U.S. commercial real estate. Respondents said tech-focused sectors including e-commerce (85 percent), continued logistics and warehousing evolution (78 percent) and the sharing economy (59 percent) should significantly the CRE market in the upcoming year.
Other highlights of the annual survey include:
–Nearly half (45 percent) of respondents agreed investment in Opportunity Zones will increase substantially in the next 12 months. “The release of final regulations in early 2019 appears to have paved the way for more investment in Opportunity Zones,” DLA Piper said.
–Boston, which ranked sixth in last year’s survey, ranked as the top U.S. city for CRE investment in the coming year. Denver and Los Angeles came in second and third, respectively.
–Canada was cited by 55 percent of respondents as the most likely source of foreign investment in U.S. CRE, similar to the law firm’s last survey at 56 percent. Following Canada were Gulf countries (43 percent), Germany (28 percent) and Singapore (27 percent). Israel, which was ranked third in the last report, fell to seventh place. China placed in the eighth spot for the second time after occupying the number one position in DLA Piper’s 2016 and 2017 surveys.
