U.S commercial real estate sentiment drops amid coronavirus concerns

U.S commercial real estate sentiment drops amid coronavirus concerns

The NAIOP Commercial Real Estate (CRE) Sentiment Index, based on a survey of real estate practitioners, has dropped below 50 for the first time since the index began in 2016.

It is a substantial drop from 57 in September 2019. Below 50 means unfavorable CRE conditions are expected in 12 months, says NAIOP.

The NAIOP CRE Sentiment Index was designed to estimate general conditions in the commercial real estate industry over the next 12 months by asking industry professionals to predict conditions for their own projects and markets.

The NAIOP Sentiment Survey is conducted biannually, in March and September. The survey is sent to roughly 10,500 NAIOP members in the U.S. who are developers, building owners, building managers, brokers, analysts, consultants, lenders and investors in the office, industrial, retail, and multifamily sectors.

However, the March 2020 survey that informs the index was conducted between March 11 and March 25, a period of rapidly increasing economic uncertainty associated with the coronavirus outbreak.

The average sentiment for employment, for example, dropped from 74 in September 2019 to 51 in March 2020, and the average sentiment for available equity and available debt also dropped sharply. However, the outlook for construction material costs and construction labor costs improved; this could signal that respondents believe there will be less demand in these areas due to a slowdown in the construction industry.

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Respondents’ expectations about general industry conditions fell between the first seven days and the last eight days of the survey. Comments from survey respondents also suggest that sentiment had deteriorated since the survey first began in mid-March and that it had become more difficult to predict future industry conditions. The survey will be re-administered later this year.

A total of 439 distinct companies are represented in this survey. Product types owned/under development by respondents broke out to roughly 21% office, 50% industrial, 5% retail and 25% multifamily; western regions were slightly more represented than eastern regions, followed by the South and the Midwest. 

Read more at NAIOP