Confidence in U.S. commercial real estate sector abounds

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Industry leaders are optimistic about the state of commercial real estate in the United States based on factors such as a solid economy, tax reform, opportunity zones and other advancements. That’s according to a recent survey from Akerman, a law firm based in Miami.

More than 200 C-suite and senior real estate executives were surveyed for the "10th Annual U.S. Real Estate Sector Report," which found that 37 percent of respondents were marginally more optimistic than in 2018, and 33 percent were significantly more optimistic. Of those surveyed, 17 percent were marginally less optimistic than in 2018, and 12 percent reported no change. Only 1 percent of those surveyed responded that they were significantly less optimistic than in 2018.

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The top reasons for confidence in the U.S. real estate market were as follows:

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  • continuing improvement of the U.S. economy: 46 percent
  • increased investment in secondary/tertiary markets: 14 percent
  • availability of equity capital investment: 14 percent
  • rising interest rates: 10 percent
  • tax reform/changes in tax code: 9 percent
  • loosening of credit requirements for financing: 7 percent

Researchers also called out opportunity zones as potential drivers for commercial real estate growth.

“There’s tremendous interest on both the developer and investor side of opportunity zones,” said Steven Polivy, chair of economic development and incentives practice at Akerman. “As we continue to see additional clarity to the program through new regulations, the fourth quarter [of] 2019 is going to be a critical period for deal collaboration.”

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When asked which market sectors respondents thought would be most active for real estate transactions this year, hospitality was second in line behind agricultural and ahead of retail and office. And, when asked if cap rates were expected to perform this year, 37 percent of those surveyed said they predicted cap rates for hospitality will increase. Meanwhile, 20 percent said they will decrease and 43 percent said they will stay the same.

Headwinds on the Horizon

For all the optimism, there is always worry. Even gross-domestic-product growth of 3.2 percent for the U.S. during the first quarter couldn’t calm some of the fears respondents face.

When asked about their primary reason for any lack of confidence in the U.S. real estate market this year, 33 percent of respondents cited rising interest rates as a concern. Meanwhile, 23 percent said uncertainty in global economic conditions; 22 percent worry about federal gridlock and uncertainty of government policy; 9 percent said tax reform/changes in the tax code; 8 percent noted potential for real-estate defaults from maturing loans; and 5 percent cited solidity of fundamentals in core sectors.

“We’re starting to feel the headwinds we expected coming into 2019 after such an extended period of expansion,” said Eric Rapkin, chair of the Real Estate Practice Group for Akerman. “Capital is still chasing deals, especially in gateway markets, but we are reaching a tipping point where things will begin to slow down. It’s not a matter of if, but when.”

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