Real Estate Market Sentiment Dips into Recessionary Waters

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Economic and geopolitical volatility has had its impact on commercial real estate activities and investments in the United States. Depending on who you talk to, the sector is still fine, bolstered as it is with plenty of capital chasing deals (despite the rising costs of those deals). Other experts, in the meantime, explain that inflation, and the Federal Reserve’s attempt to curb it with aggressive Fed Funds rate hikes, will ultimately harm the sector, canceling out deals and stalling sales volume.

RCLCO Real Estate Consulting seems to be taking the latter stance, based on its Real Estate Market Sentiment Survey, which is falling into the recessionary zone. The survey tracks confidence in U.S. real estate markets, and the most recent results fell to 35.1 (out of a potential score of 100) “as geopolitical uncertainty, persistent high levels of inflation and Fed action have raised concerns about the risk of an impending economic recession,” RCLCO analysts commented.

The survey report explains that the current index of 35.1 is above the level of 30. When the index falls below 30, this is “typically coincident with periods of economic distress or recession.” Added to this more than half of respondents surveyed believe that national real estate conditions were moderately or significantly worse to a year ago, while 67% of those surveyed believe that national real estate market conditions are likely to become “moderately” or “significantly” worse in the next year.

Just about all of those surveyed (92%) think a recession will take place at some point within the next two years, with more than half believing it will take place in the next 12 months.

Other takeaways from the survey included the following:

• For-sale housing continues in the expansion phase of the real estate cycle, but “an increasing number of respondents indicated that this sector was reaching the peak or had already crossed over into the early downturn phase.”

• Rental housing remains in expansion mode, with more respondents believing that the sector is in the late-stable phase of the cycle.

• Less consensus was found in cycle stages of commercial real estate sectors. Many reported that hospitality and industrial were in the cycle’s stable phase, while reporting huge variations in retail and office product.

• Respondents were mixed about inflation but felt that capital flows to real estate would fall, as would homeownership rates.

Source: ConnectCRE