Marcus & Millichap

Commercial Real Estate Investment Outlook

Q3 2017

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Caution creeping into the commercial real estate market even as property fundamentals remain strong.

The commercial real estate market may face gradual softening with signs that investors are proceeding more cautiously on new investment. Exclusive research results from the third quarter NREI / Marcus & Millichap Investor Sentiment Survey show a gradual cooling trend on investor sentiment. The investor sentiment index edged slightly lower to 150 as compared to 153 in fourth quarter. The sentiment index has been tapering since peaking at 179 in 2014 [Figure 1]. “It looks like 2014 may have been the peak of sentiment. That doesn’t mean that we won’t see it push upward again. But right now, we are seeing a modest softening in investor perspective,” says John Chang, first vice president of research services at Marcus & Millichap.

Uncertainty related to the new Trump administration, modest tightening in capital markets, property price increases and the mature market cycle are some of the key reasons behind the decline in sentiment. “There are a lot more questions today about how the Trump administration is going to fuel growth,” says Chang. Overall, nearly half of respondents still have confidence in the economy and a positive lift from a Trump administration, but there has been a noticeable pullback in sentiment compared to the fourth quarter survey that was taken immediately following the presidential election. Notable survey results related to the erosion of post-election expectations include...

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