ab25 January 2024Global Research and Evidence LabPowered byUBS Evidence LabYESUS Real Estate BrokersBroker Survey Highlights Tough Environment; But Outlook More OptimisticUBS Evidence Lab data highlight an increase in broker optimism for 2024The latest results from UBS Evidence Lab's survey of 100 US Commercial Real Estate (CRE) Brokers highlight a mixed outlook in leasing activity, but stronger sales pipelines. On the leasing side, the data point to a mild recovery in the industrial market, while the outlook for the office market remains negative. Interestingly, sentiment among respondents at large brokerage firms (more than 500 employees) remains substantially more pessimistic than that of their small and mid-size peers. The survey was conducted in November 2022, while interest rates were still close to peaks, so we believe broker sentiment may have improved since then. Investor sentiment has certainly gotten more positive, and with the stocks (CBRE, CWK, JLL) up ~40% on average in the last three months, we worry that too much optimism is now priced in, as it may still take some time for lower rates to drive price formation and a pick up in activity.Improved leasing outlook for Industrials; Office expectations lowerSlightly less than half of brokers (49%) indicated their leasing outlook for the overall market over the next 3 months was strong, relatively in line with 52% a year ago though much lower than the 85% in November 2021. In the important office and industrial sectors, which represent almost 90% of leasing activity for the companies we cover, the outlook over the next 3 months was mixed. The outlook improved for the industrial segment, with 50% of brokers indicating their outlook was strong, up from 35% in November 2022. For office, expectations deteriorated, with 53% of brokers reporting a weak outlook, up from 25% a year ago. Sales pipelines and expectations for market demand improvingSales pipelines appear to be improving. The number of respondents that noted a stronger sales pipeline (either increased"a lot" or "a bit" relative to the same time last year) was 55% vs. 43% in November 2022. Notably, 19% of brokers felt that sales pipelines 'increased a lot' a significant increase from 8% in November 2022. Additionally, 57% of brokers indicated they believe overall market demand will increase in the next 3 months, up from 46% in November 2022.Industry data show continued decline in activity in the 4Q Latest industry data point to 4Q sales volumes down 50% y/y and 16% sequentially from the 3Q. Additionally, industry volume (on a trailing 3-month basis) has declined each month since July, which diverges from typical year-end seasonality, and highlights that the interest rate environment continued to weigh on transactions in the 4Q. We are not adjusting 4Q23 estimates, as we are increasingly more focused on the co...
