The overall outlook for the real estate market has begun to return to levels last seen in 2021, when the UF Bergstrom Real Estate Center first started surveying its advisory board members.

Responses to questions about the housing sector yields the best evidence of this general direction. Rapidly rising interest rates in mid-2022 caused concern about the future for the housing market. A market that had been viewed as quite strong suffered a drop in those describing it as strong or very strong from 27% to 12% as seen in Figure 1. Those describing the housing market as weak or very weak jumped from 24% to 51%. Over the past six quarters, this concern has waned, and the outlook is now more typical with more than half of the respondents describing the market as stable and only 10% suggesting that it is weak.

More Stable

Respondents’ outlook for commercial real estate steadied over the recent two-year period given the data shown in Figure 2. The percentage of participants reporting the commercial market as stable remained over 50% during the entire time. There was a delayed response to the interest rate hikes producing an increase in the percentage suggesting the market was weak from 14% to 37%. This position of mostly stable with elevated weakness has held steady since that time. One respondent commented that “higher rates for longer will lead to re-rating and refinancing problems.” Perhaps anticipating this adjustment is keeping the group cautious.

Expectations for the best opportunity by property type shifted. Two years ago, 58% of our experts considered multifamily as the sector with the greatest potential. Since then, the best opportunity seems spread evenly among industrial, multifamily and retail (Figure 3A). Even offices received some favorable attention as some investors must see an opportunity as the prices have fallen. However, the office sector continues to be mostly out of favor — it received 75% of the votes as the poorest opportunity (Figure 3B). Offices have been consistently rated poorly, though in 2021 the retail sector shared the honor. Interestingly, 16% of respondents called multifamily the poorest opportunity sector in the most recent survey. This may reflect the recent drop in optimism more than an absolute concern about the sector.

Favoring the Florida commercial market is the steady rise in tenant demand revealed in Figure 4. At the end of 2023, demand was mostly viewed as stable, receiving more than 50% of the responses, and the remaining responses were split between increasing and declining. By the first quarter, several stable responses rolled into the increasing category while the declining percentage remained unchanged. During the second quarter, “decreasing” responses fell six percentage points leading to an increase in both stable and increasing. In the most recent quarter, 39% of our experts reported increasing tenant demand, 47% reported stable and only 14% believe that demand is decreasing.

Figure 5 helps explain how real estate companies are responding to the apparent shift from uncertainty to clarity. The columns show the shift in expected upcoming business activity. Consistent with the market concerns of two years ago, more than half of the businesses expected to do less business as they faced in late 2022 and early 2023. A dramatic shift started in mid-2023 as a growing number of companies expected more business in the coming year, with the peak hitting in the fourth quarter 2023 and first quarter this year. At this point, 49% of businesses expected to do more or much more business. This pattern reverses slightly during second quarter with only 40% expecting more activity, as those expecting less or much less activity rose from 20% to 26%.

Employment expectations appear to match the business level outlook with a gradual reduction in the number of companies expecting to hire fewer new employees and a general increase in the number expecting to hire more staff. The results shown in Figures 6A and 6B are mixed but indicate a positive direction. Reviewing the number of expected new hires in the coming year in Figure 6A leads to the conclusion that companies planning to reduce hires fell from 13% during the fourth quarter to 6% in the second quarter this year. Those planning not to hire increased and then receded over this time and those hiring one to four employees fell and then recovered. In general, hiring expectations peaked during the first quarter and returned to similar year-end 2023 positions. Figure 6B gives a slightly clearer picture that not as many companies expect to hire fewer employees in the coming year and a consistent number plan to hire more employees.

Time Will Tell

This quarter’s survey did not produce the spiking change in perspective that we witnessed during the pandemic or following the interest rate hikes. Rather, the outlook, demand, business expectations and hiring plans have gradually moved back to low volatility around the normal responses of the past. Perhaps the remainder of the year will offer growing certainty — or not. Time will tell.