Pro-Growth Policies, Deregulation Advance Real Estate Executive Confidence

Michael Tucker mtucker@mba.org

June 08, 2018


U.S. commercial real estate executives display "unwavering" optimism about the country's economic strength and expect more real estate market activity, reported law firm Akerman LLP, Miami.

Nearly 70 percent of executives surveyed in the Akerman U.S. Real Estate Sector Report called themselves more optimistic for market activity than in the last two years--a 25-plus percent jump.

Against a backdrop of global volatility and uneven growth overseas, U.S. GDP growth rates are inching closer to pre-2008 average annual returns. And with signs of the U.S. economy possibly growing again at a historically healthy average of 3 percent or more a year, there is reason for optimism, Akerman said. Nearly half--45 percent--of respondents cited improvements in domestic economic growth among the top two factors for their confidence in commercial real estate.

Other reasons given for optimism included the availability of equity capital investment and the federal government's pro-growth policies of decreasing the regulatory burden for businesses and lowering federal taxes, one-third of executives said.

"Since World War II ended, U.S. GDP annual growth rates have averaged around 3 percent a year, a record that has delivered the greatest wave of prosperity in history," said Akerman Real Estate Practice Group Chair Eric Rapkin. "Though global uncertainty and record-high asset valuations require investors and developers to proceed with caution, opportunities abound in commercial real estate, as industry innovations and thriving U.S. cities offer compelling investment and transactional opportunities."

Akerman reported two-thirds of executives surveyed predict job creation this year will be either "marginally" (48 percent) or "significantly" (18 percent) higher than last year. Most of the balance predicted job growth will be close to 2017. Only 5 percent said job creation in 2018 will be lower than in 2017.

Looking at top sources for real estate equity and debt, more than half of Akerman's survey participants cited private equity (57 percent) and banks (48 percent) as the leading vehicles for real estate funding. Institutional lenders and private equity funds have maintained a leading role in real estate financing for the last three years, which Akerman called a sign of robust fundamentals in the U.S. real estate sector after the 2008 downturn. Other popular financing sources identified by a quarter or more of executives surveyed included commercial mortgage-backed securities (37 percent), foreign investors (32 percent), insurance companies (32 percent) and real estate investment trusts (30 percent).

The report called CRE executives "bullish but not carefree." Almost half of respondents shared concerns about rising interest rates on the U.S. economy, something many said could temper market momentum. Nearly 30 percent also pointed to global economic worries as another element that could influence real estate deal and investment activity.

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