We’d like to believe that the acts of buying, selling and pricing are based on logic; facts, figures and careful analysis. Unfortunately, human nature and biology conspire against us to provide such certainty.
The fact is that the act of purchasing, and by extension – selling, is based on emotion. Luckily, even nebulous feelings can be translated into enough sense to measure and consider. Measuring sentiment, or confidence, is an important value to quantify and analyze to create a more complete financial picture.
Survey Says Sentiment is Strong
According to a recent survey conducted amongst commercial investors late last year, sentiment amongst investors indicates that increased consumer spending and rising occupancies are fueling confidence within the industry.
Response Remains Steady, Despite Uncertainty
The original survey results, released in late March by the trade magazine National Real Estate Investor (NREI) and Marcus & Millichap Real Estate Investment Services, is very exciting considering the timing of the survey.
As the document states, “Respondents were surveyed in late December and early January— in the midst of uncertainty surrounding how the fiscal cliff debate in Washington, D.C., would be resolved.”
Historic Highs
That uncertainty didn’t shake the confidence of the investors surveyed, instead taking the Investor Sentiment Index to an all time high of 166, overcoming the fourth quarter slump and surpassing all previous highs.
Investor Sentiment Index is a measure of survey responses from within the industry comprised of private investors, developers and private partnerships. Over the past 8 years, the index has proved to be an accurate indicator of market and direction.
The survey measures responses on anticipated changes in property values and overall plans of increased or decreased real estate holdings over the next 12 months.
Growth for Most
The majority of respondents intend to grow their commercial real estate investments
over the next 12 months. Low interest rates and increasing access to capital are expected to fuel buyer demand. With many believing that both price and occupancy rates have bottomed out, commercial real estate is expected to capture more capital investment.
Apartments Hot, Hotels Not
Apartments maintain a lead in the safe-bet department, as they continue to out-perform
all property types. Industrial properties lag only slightly behind apartments for safe bets, among the respondents. Retail saw the biggest gains in consumer confidence through strong sales and increased occupancy rates while office properties remained steady.
While showing some improvements in fundamentals, like occupancy rates, hotels are
showing a slight drop in confidence over the previous year, due to continued consumer
belt tightening and higher gas prices.
Fears Fading
Overall, the renewed confidence is a positive sign for the continued recovery of the
commercial real estate market. As the economy moves further away from the US debt
downgrade in August of 2011, fears of a double dip recession have receded and business
is booming with continued confidence.