It is difficult to summarize market expectations over the past few quarters, based on our quarterly UF Bergstrom Real Estate Center outlook survey. Perhaps our best description is one of searching for direction. Some responses suggest that a trend is forming but others shift back and forth every quarter. We will start with one of the unsettled responses — business outlook.

When asked if they expect to do more business in the coming year than last year, advisory board members’ responses moved slightly up-down-up over the past few quarters. The columns in Figure 1 change little over the past year but the cumulative perspective changed from one quarter to the next.

From year-end to the first quarter, 10% of the respondents improved their view from less to same level of business, while the cumulative more and much more responses stayed the same. This is subtle but a material strengthening from less to same. However, during the second quarter, 10% of the respondents fled from more and much more to same and less revealing a clear weakening in expectation. The third quarter showed a complete reversal to renewed strengthening. Ten percent of respondents returned to more and much more and the same response is at its recent high point leaving only 13% expecting to do less business in the coming year.

On a positive note, at least from the position of our upcoming graduates, expectations regarding hiring improved over the year (Figure 2A). Despite the slight uncertainty in future business expectations, the proportion hiring rose from 49% in the first quarter to 61% in third quarter, a significant improvement in just six months. More striking is the percentage of firms expecting to hire the same or more new employees in the year ahead: up from 58% to 81% (Figure 2B).

It is unclear where mixed business expectations and slightly improving employment prospects lead. The overall commercial outlook suggests that very few of those surveyed see the market as strong or better, at less than 10% (Figure 3). However, at least in the latest quarter, a shift from weak to stable is revealed, at 9 percentage points. This is another response in search for direction. A similar shift from weak to stable came from the fourth quarter 2023 to the first quarter 2024 but the gains were mostly given back in the second quarter. Hopefully, the third quarter shift will gain traction in coming quarters. This is our broadest measure of the market so some confidence in this response might improve the outlook in more specific sectors.

The housing outlook has been a little more consistent but shifting in the wrong direction. Approximately half of the responses regarding housing were stable, either 49% or 51% since the beginning of the year. Figure 4 shows the responses outside the middle stable answer moving from the strong side to the weak side. From the second to the third quarter, the strong or very strong responses fell from 38% to 31% and the weak or very weak responses rose from 10% to 17%, while the stable response remained at 51%. These positions were reported before the Federal Reserve reduced the policy rate in mid-September. In response to the Fed’s change in direction, albeit well anticipated, mortgage rates rose a bit and then came down in line with the Fed Funds rate. Perhaps the fourth quarter results will be more optimistic.

The more detailed sector perspective offers some interesting results. Many sectors have been rated similarly over time but the three selected for presentation in Figure 5 are striking. The average rating on a scale from 1 to 10 is shown in the chart. Please note that these figures offer a two-year comparison to show the cumulative effects of minor quarterly changes.

Apartments, suburban offices and anchor centers are presented because they offer the most unexpected results. Suburban office, in the middle of the chart, is unsurprisingly the lowest-rated subsector, and it continues to drift downward. More surprisingly, the apartment sector, viewed as one of the best in the fall of 2022, has fallen to one of the weakest and its decrease from a rating of 7.2 to 5.3 is the survey’s most dramatic. On the other hand, anchor centers’ rating improved from 6.3 to 6.7 and retail was viewed as a significantly stronger sector than multifamily.

One of the survey contradictions is revealed in Figure 6A which shows apartments as the sector with the best investment opportunity over the coming year. This runs counter to the ratings that show apartments as one of the weakest sectors. More importantly, three of the four sectors almost evenly share the best opportunity ranking: apartments received 31% of the vote, retail took 27% and industrial was third with 26%. Even the office sector received 16% of the vote for best opportunity.

The sector offering the poorest opportunity was far more concentrated as seen in the pie chart in Figure 6B. Office was the poorest with 68% of the responses, while the apartment sector was a distant second with 22%. Respondents did not consider industrial and retail as poor investments with only 5% of the vote each.

Overall, the latest survey offers some encouraging views, but the results will need to stabilize for a couple of quarters before confidence can develop on a strengthening trend.