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USA Consumers Gaining Confidence? High Optimism for Commercial Real Estate

August, 2016
by Karl Niehaus, President, CREI

Commercial Overview: 

HIGH OPTIMISM FOR COMMERCIAL REAL ESTATE: 92% of Real Estate executives are predicting continued growth in commercial real estate. Here is what the experts had to say: • Strong fundamentals, including low interest rates and continuing improvement in the U.S. economy are two primary factors instilling investor confidence. • 56% of real estate executives cited global disruption and a volatile investment market as the most pressing issues impacting the real estate sector. More than a quarter (27%) also cited federal gridlock and uncertain government policy as a principal concern. • What are the top three sources that will lead real estate financing over the next year? 42% of executives selected private equity, 37% chose banks, and 33% identified REITs. However, heightened regulations and other external forces that are pressuring the real estate market may bring about further changes to the financing landscape. 27% of executives believe foreign capital will remain a chief source of real estate financing. Insurance companies and non-traditional investment vehicles, such as pension funds, are also increasing their real estate capital allocation. • More than half of executives (59%) believe multifamily will continue to be the most active real estate sector, followed by single family homebuilding (18%), industrial (7%), office (6%), retail (6%), and hospitality (3%). • 40% of executives say multifamily will attract the most foreign investment, with the majority of capital coming from Latin America, mainly Brazil. More than half (five to seven in 10) expect China will be the dominant source of foreign capital in all other core real estate sectors. "We are seeing record levels of institutional and global equity circling the real estate market as a core investment option," said Richard Bezold, chair of Akerman's Real Estate Practice Group. "There is still significant capacity to invest in burgeoning real estate markets and dynamic second tier cities, expansion and innovation in many asset classes, and a marketplace that is thinking ahead to the future of mobility and sustainability across the nation's most trend-setting cities."

Economic Overview: 

USA CONSUMERS GAINING CONFIDENCE? The Consumer Confidence Index hit 101.1 in August, The Conference Board said. Economists expected consumer confidence to hit 97 in August, according to a Thomson Reuters consensus estimate. "Consumer confidence improved in August to its highest level in nearly a year, after a marginal decline in July," Lynn Franco, director of economic indicators at the trade group, said in a statement. The survey, a closely followed barometer of consumer attitudes, measures sentiment toward business conditions, short-term outlook, personal finances and jobs. While a growing share of respondents expect their incomes to improve, the outlook on jobs was mixed. More respondents said jobs were plentiful, but those claiming jobs are "hard to get" also rose. Similarly, while the proportion expecting more jobs in the months ahead rose to 14.2%, up from 13.5%, 17.5% of respondents still anticipate fewer jobs going forward. That being said, a more confident market is a good market for investors and owners. As consumers spend with confidence, it generates more income for rent payments.

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