Real Estate Sector Hopeful

This analysis was originally published by the Connecticut Economic Resource Center.

By Kristi Sullivan

The latest semi-annual online survey of Connecticut commercial real estate conditions, conducted by the Connecticut Economic Resource Center, Inc. (CERC), indicates that respondents are generally optimistic about the real estate market, but not all sectors of it. They are especially pessimistic about conditions in the office and retail markets both in their own geographic areas and across the state as a whole.

The CERC SiteFinder® Real Estate Survey measures the health of Connecticut’s commercial real estate market. The survey polls real estate professionals across all eight Connecticut counties asking for perspectives on local conditions in residential and four key sectors of commercial markets (office, industrial, retail, and investment). Respondents include real estate brokers and developers, bankers, appraisers, and economic development officials from around the state.

The 75 respondents to this quarter’s survey were largely real estate brokers (48 respondents, or 65%) followed by economic development professionals (23%). Over half of respondents said the primary geographic region in which they work was either New Haven County (33%) or Hartford County (27%).

Most respondents (59%) said that they have seen an increase in buyer interest and inquiries compared to this time last year, and 51% also reported that they have seen an increase in the number of deals. However, majorities also reported no change in seller interest and inquiries (54%) or access to available financing (65%) compared to this time last year.

While most of the respondents (63%) have closed a deal with a Connecticut company in the past three months, this is a nine-percentage point decrease from the previous survey in Q4 2016. The percentage of respondents saying they closed a deal with an out-of-state company moving into Connecticut in the last three months was also down from the last survey (19% and 23%, respectively).

No respondents said that current market conditions of the overall economy in their primary geography was “excellent,” although 41% said the overall economy was “good.” This was a 16-percentage point increase from the survey in Q4 2016. There was also a decrease in the proportion of respondents rating the overall economy in their primary market as “poor” (10% this quarter compared to 13% in Q4 2016). Only 20% thought that the state’s current overall economic conditions were “good” in this quarter, with 62% rating the state “fair.” The share rating the state’s market “poor” (18%) this quarter was well under last quarter (30%) and two years prior (37%).

These results are in line with consumer confidence results that CERC tracks,” said Alissa DeJonge, CERC’s Vice President of Research. “People are currently more pessimistic about overall economic conditions. With much uncertainty at the state and federal levels surrounding budget and policy issues, people’s perceptions of the economy are more concerned than before.”

Respondents were most enthusiastic about the residential market in their primary geographic market place, with 71% rating it excellent or good, followed by the investment market (66%) and industrial (60%), but negative about both the retail (36%) and office (17%). The same breakdown of optimism about the residential, investment, and industrial markets and pessimism about the office and retail markets was seen in the Q4 2016 survey. Respondents were also enthusiastic about the industrial and investment markets statewide: 61% said the statewide industrial market was excellent or good now, and 59% said it would be excellent or good three months in the future; while 55% said the investment market was excellent or good now, and 52% said it would be in the future.

Respondents were more negative about the retail and office market conditions statewide. For the retail sector, 25% said conditions were excellent or good now, and 26% said they would be in the future. For the office sector, 18% said market conditions were good now, and 18% said it would be in the in the future). Responses were mixed with respect to the residential market, with 58% saying it was excellent or good now but only 46% saying it would be in the next three months.

The same pattern is also visible in other aspects of the real estate market. When looking statewide at the next three months, respondents expected to see an increase in the number of transactions, gains in sales prices, and gains in lease prices for the industrial, residential, and investment sectors. They also expected to see a decrease in the number of transactions, a loss in sales prices, and a loss in lease prices for the retail and office sectors.

“The data signals the shift from brick-and-mortar to click-and-order,” said Erron Smith, CERC’s Associate Director of Business Development. “Online e-commerce is leading to a new standard for retailers to get product to consumers within 48 hours – which means more fulfillment centers are popping up, benefiting industrial warehouse centers.”

Use of Alternative Financing

Respondents were asked about alternative resources their clients have used to mitigate any traditional financing shortfalls in commercial development projects – 44% said there were no alternative resources used, followed by 31% reporting use of tax assessment agreements and 27% grants.