UNITED STATES - Leaders in commercial real estate for the office, retail, industrial, hospitality, and multifamily sectors are facing an increasingly gloomy outlook, according to a survey conducted by the Real Estate Roundtable.
Approximately 85% of respondents to a third-quarter 2008 survey believe conditions are worse today for the real estate industry as a whole than they were a year ago, and 63% believe things are also much worse for their own companies.
Strikingly, expectations have declined most strongly over the last three months as in April 63% of respondents believed there would be an improvement in market conditions over the coming year - yet when asked the same question in July, only 54% had a positive outlook.
These were just some of the issues addressed in the second quarterly Real Estate Roundtable Sentiment Survey, conducted on behalf of the Real Estate Roundtable - an organization of the leaders of both public and privately held companies involved in real estate ownership, developing, lending, and management, as well as the leaders of 17 national real estate trade associations.
Real estate executives clearly feel market conditions have deteriorated substantially over the last 12 months, suggests the study, even though positive market fundamentals indicate office vacancy rates are in balance, delinquency rates on commercial real estate loans are at historic lows, along with low apartment vacancy rates and evidence of retail sales.
Debt financing is, unexpectedly given the current credit market conditions, a major obstacle for many in the market as 95% of respondents reported availability of debt is worse than it was a year ago and of those, 84% reported credit availability was "much worse".
The difficulties also extend to equity financing conditions, but not to the same extent as 51% of those questioned characterized equity financing as somewhat worse than the previous year, and only 23% said conditions are "much worse".
"Decision makers in the industry believe that the income-producing sector is in trouble because financing is in trouble," said Roundtable president and CEO Jeffrey DeBoer.
"What our industry is searching for is a return to orderly credit markets, where financing is available. That is the problem that needs to be addressed," he said.
The income-producing property sector is worth roughly $5trn (€3.35trn).
Overall, respondents believe real estate values have decreased from a year ago, but concerns do not appear as extreme as only 16% feel values are much lower than 12 months ago, while 79% report they are somewhat lower.
Around half these respondents also believe values will continue to drop over the next year, while 38% believe they will remain stable and 13% are more optimistic, believing they will be somewhat higher in a year's time than they are today.
"I do not find the results surprising," said DeBoer.
"As we have seen, the problems in subprime roll onto the broader housing market then credit in general. It is only natural that we see people who operate large real estate assets suffer from the deteriorating credit situation," he explained.
"The anomaly is that despite the continuation of sound fundamentals, financing is difficult and not projected to get better."
The Real Estate Roundtable is aiming to provide a useful gauge of market sentiment.
"We are not using this survey as a way to advance any public policy view. However, policy makers need to factor in how this part of the economy is thinking," added DeBoer.