A Tale of Two CRE Surveys

WASHINGTON, DC-To hear Richard Kadzis, vice president of CoreNet Global tell it, things couldn't be rosier for commercial estate executives. Well, perhaps that might be a stretch--but the current environment's prospects are definitely more optimistic than one would think from recent economic indicators, like the recent GDP and unemployment figures, he says pointing to the new CoreNet Global Confidence Index that debuted in June, sporting a rating of 4.65 on a scale of 7 (7 representing an extremely optimistic environment). "This does stand in contrast to other indicators out there," Kadzis tells GlobeSt.com.

Other indicators being, for example, the recently-released Real Estate Roundtable's Q3 Sentiment Survey, which tells the story of an industry wary about lackluster job creation, fiscal and monetary policy and rising interest rates.

The reason for the discrepancy between the two surveys is simple: CoreNet Global respondents are corporate real estate users—i.e. tenants—and their eyes it is still their market. Says Kadzis: "They did point out that not only are they comfortable with the capital that they have on hand to expand, but they also know they have 'advantageous pricing' – so that implies that tenant market will continue for time being."

The Real Estate Roundtable's survey, by contrast, surveys a wider and more mixed populous in the industry. This group is more cautious about the future. The "Current Conditions" index remained at 71, the "Overall" index rose 1 point from the previous quarter to 70, and the "Future Conditions" index rose 1 point, from the 67 points registered in the past two quarters.

The Roundtable points out that these numbers are in positive territory but are not as high as in previous quarters. The Future Index, for example, hit almost 80 in Q2-2010 but slipped below the Current Index around the time of the 2011 debt ceiling crisis, falling to 75, and now stands at only 68.

The "survey indicates a commercial real estate sector and national economy stuck on a plateau of recovery--certainly improved since the worst days of the recession, but not moving forward in any robust way," says Roundtable President and CEO Jeffrey DeBoer, in a prepared statement.

Also from the respective surveys:

• The Roundtable's survey notes that a majority of respondents continued to view real estate market conditions as having improved at least somewhat over the past year (77% in the current survey, compared to 75% in Q2), and there was a slight uptick (from 62% to 65%) in the number of participants anticipating at least 'somewhat better' conditions within the next 12 months.

• Executives in the CoreNet Global survey ascribed even higher confidence levels to the likelihood of their companies' growth for the second half of 2013. A strong majority rated their confidence levels in the prospects for business expansion as optimistic (54.2%), very optimistic (14.6%), and extremely optimistic (4.2%). One fifth (20.8%) were neutral on the question, while less than a tenth (6.3%) expressed pessimism.

• Roundtable survey participants noted increased planning and construction in asset classes outside the multifamily segment — as well as increased investor interest outside such cities as New York, San Francisco, Dallas and Houston. At the same time, there was a strong undercurrent of caution in the respondents' anecdotal comments, the Roundtable reported. Thus, while prospects are improving in second-tier cities the bifurcation that has characterized the industry's recovery over the past four years largely continues.

• Almost three quarters (72.4%) of CoreNet Global's respondents indicated that market entry, new products, mergers and acquisitions, and on shoring will drive growth. Opportunities to improve cost performance by relocating are also viewed as likely growth drivers by over half of the executives responding (52.4%).

• One respondent to the Roundtable's survey noted that, "capital is moving up the risk curve in the most popular markets and migrating to the best assets in second tier cities, but for the majority of assets the outlook remains uncertain at best." Another commenter said, "General conditions are good but not terrific. People are still incredibly cautious with their growth plans; everyone is planning on growth, but they are hesitant to take a leap of faith in this economy."

• CoreNet respondents do not see the availability of capital to fund real estate portfolio growth as a limiting factor with almost two-thirds (62.6%) expecting sufficient levels of financial capacity and affordability for changing the size of the portfolio.