Commercial Real Estate Frontline

Change is inevitable and everybody resists it.  But what happens when the market changes and not everyone agrees with what’s happening?  We wanted to find out.  So we ran a survey of over 1,157 New England based commercial real estate owners and investors to collect their thoughts on the commercial real estate market.

Do you really think anyone selling today is distressed?

Well, not exactly.  On our end of the business, we’re hearing that there aren’t enough opportunities in the market and that sellers are afraid to transact, creating the impression that those selling today must be distressed.

Our survey indicates otherwise.  The results were almost equally divided.   Almost half disagreed.  Only 9% said they definitely agreed that anyone selling today is a distressed seller.

What’s going on with cap rates? Will they stay the same or increase?

We’ve seen an uptick in cap rates.   What do you think?  75% said  they believed that cap rates would change.  Yet a full 25% maintained that cap rates would stay the same.  So if rates are changing and most agree, are they going up or down?

According to our investors and owners, 84% thought they would go up, but they were mixed on how strongly they felt about it.  28% somewhat agreed that cap rates would increase, 44% agreed they would increase, and only 13% said that cap rates would definitely increase.

When the market’s in flux, people tend to withdraw and then slowly return as they reassess the situation.

These opinions may reflect the beginning of a detente in expectations between buyers and sellers.  There’s not doubt that cap rates are increasing and it seems to be gaining general acceptance in the market among owners and investors alike, which signifies the early steps in agreeing on the market’s direction (the amount of the cap rate increase is to be determined by how much they buy and sell for over the coming months.)

If you were to have asked these questions 3 months ago, the outcomes may have differed.  More people would have likely answered that anyone selling was truly distressed, which, according to this survey, seems to have moderated.

Two types of sellers–necessity vs choice sellers–will emerge and investors will begin to see the distinctions between these opportunities.  They’ll react accordingly, looking first for those who have to sell (necessity) and often times ending up buying from those who (choice) want to sell–these deals are often stabilized, less risky, are well located, and are superior in construction.

We believe that this easing of expectations in the market will lead to increases in transaction volume. More properties will sell, but for less.

In the next post, learn about what these investors and owners think of the tenant market and when they expect to see the bottom.

About the Author:Jeremy Cyrier is a principal with MANSARD Commercial Properties and member of the CCIM Institute faculty. He offers advisory services and brokerage expertise to commercial real estate owners and tenants.

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