Trepp CRE Survey Finds Mix of Hope, Concern

Commercial real estate executives have a partly sunny outlook about the U.S. economy and CRE fundamentals but report some structural concerns, said Trepp LLC, New York.

Trepp asked clients, readers and other contacts for their opinions on the near-term future of the commercial real estate and commercial mortgage-backed securities markets. “The upshot of the sentiment: steady but slow improvement with real pockets of risk,” Trepp said.

The data firm found a “modestly optimistic” overall result for the near-term economic outlook. Nearly 45 percent of respondents said national economic conditions would present a tailwind, well above the 29 percent who said the nation’s economy would present a headwind.

“The glass-half-full view is that by a plurality, most respondents saw conditions being helpful or improving,” Trepp said. But the report noted if nearly 30 percent of people expressed concern about the near-term economic outlook, the sentiment was far from universally bullish.

The outlook for local conditions was less positive, Trepp noted. About 39 percent of respondents said local economic conditions would present a tailwind–six points below the national reading–and 29 percent said they feel near-term local conditions would create a headwind.

“Taking individual responses and trying to craft an overarching narrative can be risky, but the results seem to indicate that a slow, grinding improvement to the markets rather than an explosive rebound is the likely pathway for CRE,” the report said.

The survey results hinted at the same tepid recovery for CRE fundamentals, Trepp said. Only one percent of respondents said they expect fundamentals to strongly improve, 39 percent said they expect modest improvement and 36 percent said things will likely be about the same in the near future. Just over 20 percent expected fundamentals to retreat.

When asked about concerns for the future, several respondents cited events playing out in Washington, D.C. “The results indicated that CRE professionals are concerned with what they are hearing,” Trepp said. Regarding policy and regulation–including the multifamily eviction moratorium–almost 58 percent of respondents said events would impact CRE negatively over the next few months. Only seven percent said events would likely affect CRE positively.

Looking at tax policy, nearly two-thirds of respondents said events over the next few months would likely impact CRE negatively. Only three percent said tax law revisions would be positive for the market. More than half of those polled said new tax measures represented a “major concern,” Trepp said. Other major concerns included Federal Reserve policy and labor shortages.