Altus Group: Commercial Real Estate Industry Expectations Mixed, but Show Signs of Optimism

(Image courtesy of Altus Group; Breakout image courtesy of Brett Sayles/pexels.com)

Altus Group, Toronto, released its Q3 Commercial Real Estate Industry Conditions and Sentiment Survey, finding that the number of respondents who cited “deploying capital” as a primary focus over the next 6 months grew to 31%.

That’s 11 percentage points more than Q2–and those who reported “being on pause” or de-risking their portfolios dropped by 5 and 6 percentage points, respectively.

Fifty-one percent of respondents believe their capital expenditures will be similar compared with last year, but were split on revenue and net operating income growth. A plurality said cash flow expectations have stabilized, and expectations for increased cap rates have de-intensified.

The percentage of respondents who believe peer firms will be competitive grew 5 percentage points from Q2 to 27%, and the number who expect the level of competition will be balanced slipped by 4 percentage points to 68%.

Opinions about pricing have evened out, with participants describing current pricing as “about right,” across a majority of sectors. However, single-family residential and land/development were still described as “overpriced.” Hospitality and multifamily were both deemed “fairly priced” after being viewed as “overpriced” in Q2.

Recession expectations were moderate. Forty-three percent of respondents still say a recession is “somewhat likely” over the next 6 months, up from 35% in Q2, but down from 55% at the end of last year.

However, 58% said they expect the next recession to be shallow and short-lived.

Respondents’ near-term transaction intentions continued to increase through the quarter, with 89% saying they plan to transact in the next 6 months–an all time high.

Overall, respondents report expectations that the operating environment has stabilized, with 69% saying that anticipate a “somewhat challenging” environment, flat from Q2.

By property type, outlook for the industrial sector weakened, and multifamily sentiment has rebounded sharply. Retail and hospitality are starting to see concerns, and office saw a small improvement.

Looking at priority issues over the next year, the cost of capital remained the top concern, with 60% of respondents pointing to it as a priority. Also ranking high were operating costs/expense management, capital/credit availability, insurance costs (although down by 16 percentage points from Q2) and leasing/tenant reduction.