Global Real Estate Survey: CRE Optimism Is Fragile
A lot of U.S. commercial real estate pros are bearish about the near future, according to a new survey by DLA Piper Global Real Estate, with more than half of the respondents believing that a slowdown is near.
On the other hand, 42% still feel bullish, with many respondents citing the abundance of capital as their main cause of optimism, followed by the overall strength of the U.S. economy.
Among the more pessimistic respondents, 30% cite domestic and geopolitical uncertainty as their chief concern. Slightly less — 28% — cited the business cycle as a worry, with an inevitable correction ahead for the commercial real estate industry. Other worries included rising interest rates and unsustainable cap rates.
The survey also found that half of the respondents believe coworking space will be a major disrupter in CRE this year. Almost as many respondents cited e-commerce as a disrupter.
Almost everyone, 90% of respondents, thinks that interest rates will rise in 2019, even as the Fed has paused increases and is sending mixed signals if more are coming this year. As the cost of capital increases, transactional volume is expected to decrease, putting pressure on cap rates and sellers.
Investors are close to evenly split on whether to invest in the opportunity zones created by the 2017 Tax Cuts and Jobs Act, with some citing the attractiveness of new incentives and others noting concerns about structuring requirements that may reduce their practical value. Respondents expressed concerns about OZs including that it will take up to 10 years to realize any benefit from them.
Most opportunity zones tend to be in secondary markets or underprivileged neighborhoods, and so could be the first to experience problems during the next downturn, and managing tax risks is problematic when it comes to OZs.