EY: Foundation Stabilizes for Dealmakers

NEW YORK CITY-Six months has made a change for the better in real estate executives' outlook, as an EY survey has found an overwhelming majority of them see the global economy improving or stable. Eighty-five percent of the executives surveyed this past April shared that assessment, compared to just 65% when the biannual survey was last conducted in October 2012, says EY.

Survey respondents reported an even bigger leap in confidence when it comes to credit availability. Fifty-one percent of the 117 senior executives from around the world say credit supply is expanding, compared to just 18% six months prior—although a plurality of respondents (49%) nonetheless say cash is king in financing deals.

Six months has also made a big difference in executives' confidence level in economic growth (57%, up from 26% last October), corporate earnings (49%, up from 22%), employment growth (48% versus 28% six months ago), the stock market outlook (35% compared to 20%) and short-term market stability (30% versus 12%). In the cases of credit availability, the stock market outlook and corporate earnings, the numbers represented a greater sense of optimism for metrics that had executives feeling less confident six months ago than they had a year ago. 

“The greater sense of optimism evident in our survey, though still somewhat cautious, strongly suggests a more stable foundation for deal making in which there are likely to be attractive opportunities for first-movers in most sectors,” says EY global hospitality leader Michael Fishbin. “This optimism is buoyed in part by a consensus that global economic fundamentals are improving.”

Nonetheless, EY notes that industry participants are likely to keep tabs on “a number of global economic factors that may limit momentum.” Among these are: declines in emerging market growth; dampening economic indicators in key eurozone countries, particularly Germany; the prolonged eurozone crisis, including the Cyprus bailout; and uncertainty regarding the long-term impact of the United States sequester. The survey poses the question: “Will global optimism gain momentum, or will psychology start to shift back toward the economic problems we face, as it did in the second halves of 2011 and 2012?”

Survey respondents note that the bid/ask spread has narrowed quite dramatically and is expected to shrink further over the next 12 months, portending greater deal velocity. Along with that are expectations for higher prices. “Forty-six percent of respondents expect prices to rise in the next year, compared to 37% in April '12,” Fishbin says. “With pricing clearly believed to be on an upward path, buyers might have a limited amount of time to lock in the best deals.”