Tag: Quarterly Sentiment Index

CRE Executives’ Optimism About Q1 Market Conditions Tempered by Inflation and Interest Rate Concerns

Posted on by Trey Jackson

As the economy continues to recover from the global pandemic, commercial real estate executives see strong market fundamentals and steady economic growth, according to The Real Estate Roundtable’s Q1 2022 Economic Sentiment Index. While optimistic about the economic outlook going forward, inflation concerns and a rising interest rate environment are frequently cited as potential headwinds for the industry.

Market Conditions

John Fish 2021 Suffolk

  • Additionally, Roundtable Chair John Fish (Chairman and CEO, Suffolk), above, on Feb. 14 discussed the real estate market and return-to-office efforts on Bloomberg’s “The Tape” podcast. (Listen to podcast from 10:45 to 16:55)
  • The Roundtable’s Overall Q1 2022 Sentiment Index—a reflection of the views of real estate industry leaders—registered a score of 66, a seven-point increase relative to the Q1 2021 score, demonstrating continued optimism for market conditions despite a decrease of seven points from Q4 2021. The Current Index registered at 71, a 27- point increase compared to Q1 2021. The Economic Sentiment Overall Index is scored on a scale of 1 to 100 by averaging the scores of Current and Future Indices. Any score over 50 is viewed as positive.
  • The Roundtable’s quarterly economic survey also shows that 69 percent of respondents believe that general market conditions today are “much better or somewhat better” versus one year ago—and that 53 percent anticipate conditions will continue to improve one year from now.
  • Roundtable President and CEO Jeffrey DeBoer said, “We are encouraged by the decreasing number of cases of COVID-19, pandemic-related restrictions being lifted throughout the country, cities continuing to reopen safely and efficiently, and increased travel and consumer spending. Our nation’s post-pandemic recovery is reliant on the revitalization of cities, safe transportation systems, significant return of employees to the workplace, and healthy real estate values.”
  • He added, “Throughout the pandemic the real estate industry has assisted suddenly jobless residents and troubled business tenants restructure leases to remain in their properties. Industry leaders now look forward to reimagining people’s living, shopping, work, and other spaces in the built environment to accommodate the evolving needs of the post-COVID economy.”

Topline Findings 

Q1 2022 General Conditions

  • The Q1 2022 Real Estate Roundtable Sentiment Index registered a score of 66, a decrease of seven points from the fourth quarter of 2021 but a seven-point increase over Q1 2021. While optimistic about the economic outlook going forward, inflation concerns and a rising interest rate environment were frequently cited as potential headwinds for the industry.
     
  • Survey respondents’ outlook varied between asset classes and location; most participants felt that real estate assets, particularly single and multifamily housing and industrial, remain largely “priced to perfection” with limited supply being chased by seemingly “boundless” capital.
     
  • This supply-demand imbalance has generally led to compressed cap rates across favorable asset classes and results in perceptions that valuations will remain elevated.
  • Participants cited a continued abundance of debt and equity capital and strong investor demand for real estate. 

Data for the Q1 survey was gathered in January by Chicago-based Ferguson Partners on The Roundtable’s behalf. See the full Q1 report. 

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Commercial Real Estate Executives Report Steady Q4 Market Fundamentals

Posted on by Trey Jackson

Commercial real estate leaders report positive market fundamentals across asset classes, according to The Real Estate Roundtable’s Q4 2021 Economic Sentiment Index. Industry leaders describe steady supply, demand and financial conditions for multifamily, industrial, life science and other assets while expressing some caution about the strength of office and hotel assets. Leaders also noted conditions vary by geography and local governmental policies.

Topline Findings

Jeffrey DeBoer, Real Estate Roundtable President and CEO

  • The Roundtable’s Overall Q4 2021 Sentiment Index registered a score of 73, which reflects continued optimism about general market conditions despite a slight dip of five points from the previous quarter. The Economic Sentiment Overall Index is scored on a scale of 1 to 100 by averaging the scores of Current and Future Indices. Any score over 50 is viewed as positive. 

  • Roundtable President and CEO Jeffrey DeBoer (above) said, “Our Q4 Sentiment Index score is a 29-point increase over the same time period last year. This is a solid indication of significant progress in the overall economy as more businesses continue to reopen under cautious, local COVID-19 protocols.” 
  • He added, “CRE leaders are encouraged by the safe (albeit slow) return of employees to their work places, robust retail consumer appetites, and the gradual return of domestic and international travelers to hotels, resorts and other hospitality assets. The commercial real estate industry continues to play an active role in accommodating new business and individual preferences that will help the economy adjust post-COVID.” 
  • “Industry leaders are concerned with accelerating inflation, supply chain obstacles and still unclear questions regarding future office space desires,” DeBoer noted. 
  • The Roundtable’s quarterly economic survey also shows that 85 percent of respondents believe that general market conditions today are “much better or somewhat better” versus one year ago – and that 61 percent anticipate conditions will continue to improve one year from now. 
  • The report’s Topline Findings include:
     
    • The Q4 2021 Real Estate Roundtable Sentiment Index registered a score of 73, a decrease of five points from the third quarter of 2021 and a 29-point increase over Q4 2020. Despite the slight downtick from Q3, participants largely expressed optimism regarding the current fundamentals of the commercial real estate market.
    • That said, perceptions vary by property type and geography, with industrial, multifamily, life sciences and data centers most in favor. Delayed return-to-office policies and questions about office space demands have resulted in a degree of uncertainty. 
    • Asset values have trended upward across asset classes compared to the previous quarter.
    • Participants cited a continued availability of debt and equity capital. International investors remain highly interested in opportunities within the United States.

Infrastructure & CRE

Chicago skyline upward

  • DeBoer also noted, “The recent passage of the $1.2 trillion bipartisan infrastructure bill by Congress will help the commercial real estate industry to ramp up its existing suite of climate-friendly practices by reimagining, building and retrofitting America’s built environment.” 
  • He added, “The Roundtable is also encouraged that the bill emphasized the expanded use of public-private partnerships to reach infrastructure goals – as well as measures that will streamline the federal permitting process and improve key federal energy data that support EPA building labels.” 

Data for the Q4 survey was gathered in October by Chicago-based Ferguson Partners on The Roundtable’s behalf.  See the full Q4 report. 

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Commercial Real Estate Leaders Report Improving Market Conditions Amid Uncertain Return-to-Office Trends

Posted on by Trey Jackson

Q3 2021 Sentiment Index Chart

Commercial real estate executives report improving market conditions, through consistent growth of various asset classes, despite uncertainty surrounding employees returning to the office, according to The Real Estate Roundtable’s Q3 2021 Economic Sentiment Survey released today. The report shows the continued positive momentum for industrial, multifamily and single-family assets, with hospitality continuing to improve with increased travel. 

Market Conditions

  • “As the commercial real estate industry continues to adapt in the face of the global pandemic, we recognize the changing demands and expectations for hospitality, shopping centers, office buildings, travel and convening spaces,” said Real Estate Roundtable President and CEO Jeffrey DeBoer. “Strong, stable and growing real estate markets can be a driving force for the nation’s economic recovery, and contribute productively to a world struggling to overcome COVID and its variants. Investment in these reimagined spaces presents the opportunity to move the economy forward for the benefit of all Americans.”
     
  • The Roundtable’s Q3 Current Conditions Index of 85 increased 7 points from the previous quarter, the highest index recorded in its thirteen year history.
     
  • The Economic Sentiment Overall Index is scored on a scale of 1 to 100 by averaging Current and Future Indices; any score over 50 is viewed as positive. The Roundtable’s Overall Q3 2021 Sentiment Index registered at 78 – a one-point increase from the previous quarter. 
     
  • The Roundtable’s quarterly survey shows that 89 percent of respondents believe that general market conditions today are “much better or somewhat better” versus one year ago – with an abundance of available capital compared to one year ago.
  • However, this quarter’s Future Conditions Index of 71 decreased 4 points compared to last quarter, indicating uncertainty still remains while the country continues to recover from the COVID-19 crisis.

Topline Findings:

Chicago skyline upward

  • The Q3 2021 Real Estate Roundtable Sentiment Index registered a score of 78, an increase of 1 point from the second quarter of 2021 and a 36-point increase over Q3 2020. The speed of the economic recovery compared to only 6 months ago has provided more clarity and certainty for specific asset classes, with the biggest looming question marks being the impact of employees returning to the office and rising inflation risk.
     
  • Industrial performed exceptionally well throughout the pandemic and has maintained positive momentum through the first half of 2021. Additionally, multifamily and single-family suburban assets continue to attract strong demand. Previously challenged assets such as hospitality have rebounded and remain hopeful to reach pre-pandemic levels with increased travel and employees returning to the office.
     
  • Assets classes with durability or the perception of durability such as high-quality multifamily, long-term net lease office, and industrial have all hit record levels, all while certain sectors and regional markets (in particular, those relying heavily on mass transit) have yet to fully recover.
     
  • Respondents cited a continued abundance of available debt and equity capital, which has led to significant amounts of capital sitting on the sidelines waiting for attractive deployment opportunities.
  • DeBoer also noted, “Historically, the real estate industry has played a pivotal role in catalyzing economic recovery following national and worldwide events, and we have the opportunity to play that role again. With the recent infrastructure policy developments in Washington, it is a once-in-a-generation opportunity to rebuild cleaner, safer, and more climate-friendly buildings. With private capital readily available for investment, we are hopeful federal and public private partnerships will continue to fuel job creation and equitable economic development needed to continue the progress made in the economic recovery.”

Data for the Q3 survey was gathered in July by Chicago-based Ferguson Partners on The Roundtable’s behalf.  For the full Q3 report, visit here.

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Commercial Real Estate Executives Report Improved Current Markets and Caution Ahead

Posted on by Trey Jackson

Q2 2021 Sentiment Index Graph - RWCommercial real estate executives report Q2 market conditions have stabilized since the previous quarter, yet note the future is clouded by concerns about labor shortages, inflationary pressures and the outcome of current policy proposals in Washington, according to The Real Estate Roundtable’s Q2 Economic Sentiment Index.  

Current and Future Sentiment

  • The Roundtable’s Overall Sentiment Index is scored on a scale of 1 to 100 by averaging Current and Future Indices; any result over 50 is viewed as positive. This quarter’s Overall Sentiment registered a score of 77.

  • The Roundtable’s Q2 Current Sentiment score of 78 is a 34-point increase over Q1, reflecting increased vaccination, a reduction in the number of positive COVID tests, and moves to reopen businesses. The current sentiment score also stands in contrast to the economic environment of one year ago, when the current sentiment score hit 13, an 11-year low. 

  • However, sentiment reported in Q2 about Future Conditions registered a flat score of 75 – only one point more than the previous quarter – reflecting continued concerns about the pandemic’s long-term impacts.  

Roundtable Insight

  • Roundtable President and CEO Jeffrey DeBoer said, “Industry leaders are encouraged by the steady progress of vaccinations, rapidly declining infection rates and businesses reopening, but their ongoing concerns over increasing construction costs, inflationary pressures and labor supply have resulted in a more measured outlook.”

  • “As the long-term economic repercussions of the pandemic remain unclear, Washington lawmakers should prioritize new policies that encourage continued economic growth over initiatives that could hinder the recovery,” DeBoer added. 

  • The Roundtable’s survey for the Q2 Sentiment Index also shows that eighty-three percent of respondents believe that general market conditions today are “much better or somewhat better” versus one year ago – and that availability of capital remains plentiful compared to one year ago.

  • The Roundtable’s Q2 Economic Sentiment Index’s Topline Findings include:

    • An Improvement in Current Market Conditions
      Respondents’ views reflect the progress of the national vaccination rollout and improvements in near-term conditions, compared to the economic trough one year ago.
    • Increasing Values for In-Demand Asset Classes
      Respondents report investors are starting to bid up asking prices for in-demand asset classes such as life science and storage.
    • Steady Capital Markets
      Most respondents cited accessible capital market for debt and equity, especially when compared to a far more difficult overall market one year ago.   

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Roundtable’s Q1 Sentiment Index Shows CRE Execs Optimistic About Market Conditions

Posted on by Trey Jackson

Q1-2021-Sentiment Index Graph - HomePage

Commercial real estate industry leaders continue to acknowledge the effects of the COVID-19 pandemic on various asset classes, while expressing increased optimism about market conditions for the remainder of 2021, according to The Real Estate Roundtable’s Q1 2021 Economic Sentiment Index. The March 3 Index also reports on growth potential for the industrial and multifamily sectors, while hospitality and retail continue to face challenges due to government restrictions and health guidelines.

  • Real Estate Roundtable President and CEO Jeffrey DeBoer stated, “Our Q1 index indicates that despite the extremely challenging past 12 months, industry leaders are optimistic that market conditions are trending in positive way. General supply and demand market balance, functioning capital markets, and low leverage – combined with increased vaccination efforts – have sparked the strong uptick in optimism. Of course all of this is threatened if vaccinations stall overall, or if national policymakers impose new tax or regulatory burdens on the industry.”
  • DeBoer also noted the positive role that real estate has played in combatting the pandemic. “Throughout the pandemic, real estate owners, managers, investors and lenders each have focused on mitigating the impact of the crisis on their residential and business tenants. The industry has restructured leases with tenants under stress, advocated for federal rental and other assistance, helped educate tenants on how to access relief, provided significant reforms to health-related building operational protocols, and issued detailed guidance to ensure safe and effective ways to re-enter buildings,” he said.
  • The Roundtable’s Q1 2021 Sentiment Index registered at 59 – a fifteen-point increase from the previous quarter.  [The Overall Index is scored on a scale of 1 to 100 by averaging Current and Future Indices; any score over 50 is viewed as positive.]. This quarter’s Current Conditions Index of 44 increased 17 points from the previous quarter, while this quarter’s Future Conditions Index of 74, is an increase of 13 points compared to last quarter. The last time the Future Conditions Index registered at 74 was Q3 2010.

    The report’s Topline Findings include: 

  • The Q1 2021 Real Estate Roundtable Sentiment Index registered a score of 59, an increase of 15 points from the fourth quarter of 2020. Respondents continued to express optimism about future conditions; however, the outlook is highly dependent upon asset class and portfolio mix.
  • The industrial and multifamily sectors were cited as having been the most resilient to the global pandemic, and best positioned to emerge successful in a post-pandemic environment. Retail and hospitality sectors continue to face challenges stemming from public health measures and government restrictions.
  • Low transaction volume has resulted in limited visibility into asset valuations over the past year. Among the trades that have occurred, industrial assets have seen their values increase, mirroring the market overall, while multifamily properties are trading at a slight discount to their pre-COVID values.
  • Capital flows within the real estate market are following the sector-specific impacts of the pandemic. Most respondents cited accessible capital markets for high quality assets, particularly in the industrial and multifamily spaces. However, out-of-favor property types and strategies with leasing and/or development exposure are finding it more difficult to secure institutional equity and financing. 

Data for the Q1 survey was gathered by Chicago-based FPL Associates on The Roundtable’s behalf.  For the full Q1 report, visit here and full news release.

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Q1 Survey: Commercial Real Estate Executives Express Optimism About Current and Future Market Conditions

Posted on by Trey Jackson

Current Conditions Index Increases Seventeen Points from Previous Quarter

(WASHINGTON, D.C.) — Commercial real estate industry leaders continue to acknowledge the effects of the COVID-19 pandemic on various asset classes, while expressing increased optimism for both current and future market conditions for the remainder of 2021, according to The Real Estate Roundtable’s Q1 2021 Economic Sentiment Survey released today. The report outlined the potential for growth for the industrial and multifamily sectors, while hospitality and retail continue to face challenges due to government restrictions and health guidelines.

“Throughout the pandemic real estate owners, managers, investors and lenders each have focused on mitigating the impact of the crisis on their residential and business tenants,” said Real Estate Roundtable President and CEO Jeffrey D. DeBoer. “The industry has restructured leases with tenants under stress, advocated for federal rental and other assistance, helped educate tenants on how to access relief, provided significant reforms to health related building operational protocols, and issued detailed guidance to ensure safe and effective ways to re-enter buildings.” DeBoer added, “Our Q1 index indicates that despite the extremely challenging past 12 months, industry leaders are optimistic that conditions are trending in positive way. General supply and demand market balance, functioning capital markets, and low leverage, combined with increased vaccination efforts have sparked the strong uptick in optimism. Of course all of this is threatened to be reversed if vaccinations stall overall, or if national policymakers impose new tax or regulatory burdens on the industry.” 

The Roundtable’s Q1 2021 Sentiment Index registered at 59 – a fifteen-point increase from the previous quarter.  [The Overall Index is scored on a scale of 1 to 100 by averaging Current and Future Indices; any score over 50 is viewed as positive.]. This quarter’s Current Conditions Index of 44 increased 17 points from the previous quarter, while this quarter’s Future Conditions Index of 74, is an increase of 13 points compared to last quarter. The last time the Future Conditions Index registered at 74 was more than a decade ago in Q3 2010.

The report’s Topline Findings include:

  • The Q1 2021 Real Estate Roundtable Sentiment Index registered a score of 59, an increase of 15 points from the fourth quarter of 2020. Respondents continued to express optimism about future conditions; however, the outlook is highly dependent upon asset class and portfolio mix.
  • The industrial and multifamily sectors were cited as having been the most resilient to the global pandemic, and best positioned to emerge successful in a post-pandemic environment. Retail and hospitality sectors continue to face challenges stemming from public health measures and government restrictions.
  • Low transaction volume has resulted in limited visibility into asset valuations over the past year. Among the trades that have occurred, industrial assets have seen their values increase, mirroring the market overall, while multifamily properties are trading at a slight discount to their pre-COVID values.
  • Capital flows within the real estate market are following the sector-specific impacts of the pandemic. Most respondents cited accessible capital markets for high quality assets, particularly in the industrial and multifamily spaces. However, out-of-favor property types and strategies with leasing and/or development exposure are finding it more difficult to secure institutional equity and financing.

DeBoer noted, “The Roundtable remains committed to working with the Administration and Congress to advance bipartisan federal measures that will accelerate the economic recovery and strengthen our resiliency in the event of future pandemics or similar threats: provide direct relief to workers and families, rental assistance for both residential and business tenants, temporary tax incentives to offset the cost of critical health and safety measures implemented by employers, and legal liability safeguards for businesses that clearly define expectations and create much-needed certainty for employers to facilitate a return to work.” 

Data for the Q1 survey was gathered by Chicago-based FPL Associates on The Roundtable’s behalf.  For the full Q1 report, visit here.


Roundtable’s Q4 Sentiment Index Shows CRE Execs Optimistic Despite Serious Market Challenges; Walker Webcast Focuses on the Future of Urban Real Estate

Posted on by Trey Jackson

Commercial real estate executives expressed a modest increase in optimism about market conditions despite serious COVID-related challenges, according to The Real Estate Roundtable’s Q4 Economic Sentiment Index released this week. (Roundtable news release, Dec. 2)

  • A majority of respondents to the survey also noted that general conditions one year from now will be either “somewhat better” or “much better” than today. 
  • “Nearly every sector of the commercial real estate industry is facing serious economic challenges due to the overall impact of the pandemic. High unemployment, closed businesses, travel reductions and more have ripped into otherwise healthy real estate portfolios, creating challenges for all building owners in meeting their payroll, utility, tax and debt service obligations. Overall industry low leverage, general market balance, and functioning capital markets are positive influences that – when coupled with growing good news regarding vaccines – results in an increased optimism on part of industry leaders,” said Real Estate Roundtable President and CEO Jeffrey DeBoer. 
  • DeBoer also said,  “That optimism is dependent however on urgently-needed additional COVID relief from Washington and on the rapid testing and availability of effective vaccines. Federal lawmakers and regulators must support further assistance to bridge people and businesses into a post-COVID economy. Help is needed quickly for local governmental budgets, as well as for people and businesses negatively economically impacted by the pandemic. And some protection from unnecessary lawsuits must be provided to businesses to spur a more robust transition back to workplaces. ” 

The Roundtable’s Q4 Sentiment Index topline findings include:

  • The Sentiment Index registered a score of 44, an increase of two points from the third quarter of 2020. Respondents continued to express optimism about future conditions, and many noted increasingly positive trends in their own portfolios. Participants from the hospitality and retail sectors were understandably less optimistic, but felt market dynamics were strong enough that successful recoveries were possible.
  • Respondents referenced stronger markets for industrial and multifamily properties, while retail and hospitality properties were perceived as challenging in this environment. Dynamics in the office sector remain uncertain for most participants as work from home policies have created an uncertain future operating environment.
  • Lower leverage and continued forbearance have combined to allow owners to retain their positions, despite distress within their portfolios. As a result, owners are resistant to realizing discounted asset prices while buyers are seeking discounts as steep as 30% within the hospitality industry.
  • Most respondents cited accessible capital markets for high quality assets, and an increase in debt as well as equity availability. Many also noted the real estate market in general has lower levels of leverage than seen in the last downturn.

Future of Urban Real Estate

Walker Webcast with Mark Parrell and Owen Thomas image

On this week’s Walker Webcast, Roundtable Member Willy Walker (Chairman & CEO, Walker & Dunlop) discussed the pandemic’s impact on urban centers with Roundtable Board Member Owen Thomas (CEO, Boston Properties) and Roundtable Member Mark J. Parrell (President & CEO, Equity Residential Investments). 

  • Thomas commented, “It’s all about the virus. CEOs increasingly are understanding the problems with all remote work. Cultures are getting stretched and it is difficult to do more creative and strategic work, to procure new customers when everyone is working remotely. Companies want to get their employees back to work but companies are also very concerned about liability. What’s going to change all that around is health security.”
  • He added, “We have to get people back to the offices, back to the big cities for the overall economy to recover.”
  • Parrell noted, “When we think about our urban centers, there are places like New York that have been around 400 years and they’ve been resilient over time. (During) the last two decades in New York, up to the pandemic, the quality of life improved so much. These cities are capable of recovery, but good leadership is required. It will be very important that these cities be led by both public and private minded individuals who, like the Partnership for New York for example, are trying to put the city back together and on its feet. Once the cities re-energize, renters will return.”
  • Parrell added, “I do think there’s going to be a migration back into city centers, based initially on price and on activation as the vaccine gets broadly distributed.”

The pandemic’s ongoing impact on CRE and the policy response will be a focus of discussion during The Roundtable’s virtual State of the Industry Business Meeting and policy committee advisory committee meetings on January 27-28, 2021.

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Commercial Real Estate Executives Optimistic Despite Serious Current Market Challenges

Posted on by Trey Jackson

A quarterly survey of commercial real estate industry leaders reflects optimism about market conditions, despite ongoing serious COVID-related challenges. Sentiment is somewhat bouyed by positive supply, demand and capital access, as well as hopeful expectations for a vaccine.  

(WASHINGTON, D.C.) — Commercial real estate executives expressed a modest increase in optimism about market conditions, according to The Real Estate Roundtable’s Q4 Economic Sentiment Index, released today. A majority of respondents to the survey also noted that general conditions one year from now will be either “somewhat better” or “much better” than today. 

Those surveyed noted particularly challenging economic conditions in the hospitality and retail sectors; market uncertainty associated with future office space use; somewhat stable multifamily markets, and relatively stronger industrial and life science markets. They cited industry fundamentals, functioning capital markets, industry-wide low leverage and modest lender debt service forbearance as factors in the industry’s ability to thus far withstand the very serious COVID-related market challenges.

“Nearly every sector of the commercial real estate industry is facing serious economic challenges due to the overall impact of the pandemic. High unemployment, closed businesses, travel reductions and more have ripped into otherwise healthy real estate portfolios, creating challenges for all building owners in meeting their payroll, utility, tax and debt service obligations. Overall industry low leverage, general market balance, and functioning capital markets are positive influences that – when coupled with growing good news regarding vaccines – results in an increased optimism on part of industry leaders,” said Real Estate Roundtable President and CEO Jeffrey DeBoer. 

DeBoer added, “That optimism is dependent however on urgently-needed additional COVID relief from Washington and on the rapid testing and availability of effective vaccines. Federal lawmakers and regulators must support further assistance to bridge people and businesses into a post-COVID economy. Help is needed quickly for local governmental budgets, as well as for people and businesses negatively economically impacted by the pandemic.  And some protection from unnecessary lawsuits must be provided to businesses to spur a more robust transition back to workplaces. ” 

The Roundtable’s Q4 Economic Sentiment Index’s Topline Findings include:

  • Increased Optimism
    Respondents’ views reflected an increase in optimism for overall and near-term conditions (from a recent and sharp drop).
  • Better General Market Conditions
    A majority of respondents anticipated better market conditions in one year’s time, having noted worse market conditions today as compared with a year ago.
  • Stable Capital Markets
    Most respondents cited accessible capital markets for high-quality assets, and an increase in debt as well as equity availability. 
     

    Data for the Q4 survey was gathered by Chicago-based FPL Associates on The Roundtable’s behalf. 

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Commercial Real Estate Executives See a Coronavirus Vaccine as Cure for Current Market Challenges

Posted on by Trey Jackson

Commercial real estate executives recognize the various challenges in the current market as a result of the COVID-19 pandemic, while remaining optimistic about future market conditions, according to The Real Estate Roundtable’s Q3 2020 Economic Sentiment Index released today.  The report emphasizes the importance for developing, testing, and distributing a vaccine in the coming months in order for market conditions to show further improvements.

  • “As our Q3 index shows, commercial real estate markets continue to suffer from the effects that the COVID-19 pandemic has had on businesses and residential tenants” said Real Estate Roundtable President and CEO Jeffrey DeBoer. “Hospitality, senior housing, and retail commercial real estate tenants in particular are struggling currently, as are CMBS loan pools consisting of these asset types. Other commercial real estate sectors, notably office and multifamily, also are facing challenges related to the overall economic hit from the health care crisis and are very cautious in their activities. However, generally balanced CRE market conditions and responsible leverage prior to the crisis positions the industry to stabilize and move forward positively once a vaccine is available,” DeBoer added.
  • The Roundtable’s Q3 2020 Sentiment Index registered at 42 – a four point increase from the previous quarter.  [The Overall Index is scored on a scale of 1 to 100 by averaging Current and Future Indices; any score over 50 is viewed as positive.]. This quarter’s Current Conditions Index of 21 increased eight points from the previous quarter, while this quarter’s Future Conditions Index of 63, is an increase of one point compared to last quarter, and a 13-point increase compared to Q1 2020. 
  • The report’s Topline Findings include:
    • Many respondents expressed optimism about future market conditions as they feel current market conditions are the result of the COVID-19 pandemic, as opposed to poor underlying market fundamentals.  However, until a vaccine or treatment is released and the general populace regains its confidence, responders felt the market would stay in its current challenged state.  
    • Survey responders expect a challenging market for at least the next six to nine months while a vaccine is created, tested, and distributed. Assuming a vaccine is released, most responders assume the market will be in recovery by this time next year.
    • Transaction volume has been down since the beginning of the COVID-19 pandemic in most markets.  Anticipated asset price discounts for most property types have yet to materialize as property owners are not willing to capitulate to market pressures if they can keep hold of their assets until a post-vaccine market. 
    • Many responders described the capital markets as open, but challenging to access.  Construction and permanent financing options have increased since the beginning of the pandemic, but are still selective, relative to the projects they will finance.  Institutional equity has continued to enter the market where it has an existing relationship with a manager; otherwise, investors are reluctant to enter the market at this time.    
  • DeBoer noted, “While a vaccine continues to be explored, it is imperative that Congress and the Administration soon come to an agreement on the next round of COVID-19 relief. Extending added unemployment benefits, additional funding for the Paycheck Protection Program (PPP), and a rental assistance program to help impacted people as well as struggling small businesses is needed. Moreover, property owners, hospitals, schools and others need liability protection against frivolous lawsuits and businesses need assistance as they seek to cover new and unusual expenses related to safety and cleaning protocols.” 

Data for the Q3 survey was gathered by Chicago-based FPL Associates on The Roundtable’s behalf. The Roundtable table’s Q4 Sentiment Index will be released in November.

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Q2 Economic Sentiment: Commercial Real Estate Execs Confirm COVID-19 Market Downturn

Posted on by Trey Jackson

Q2 2020 Sentiment Index - Homepage

Commercial real estate executives confirmed a downturn in Q2 market conditions due to job losses and business shutdowns related to COVID-19, according to The Real Estate Roundtable’s 2020 Q2 Economic Sentiment Index released today.  The report also shows there is an expectation for an improvement in market conditions by next year, dependent upon the return of jobs and the ability to safely reopen businesses. 

  • “The commercial real estate industry, like all industries, experienced in the second quarter a sudden onset of economic disruption due to business lockdowns and stay-at-home shutdown orders put in place to combat the pandemic,” said Real Estate Roundtable President and CEO Jeffrey DeBoer.  “The economic damage to commercial real estate has been particularly harmful for the retail and lodging sectors of the industry.  Although our Q2 survey results show there is hope for improved conditions within the next year, there are significant concerns that other sectors of the industry could be dragged down if jobs don’t rebound and government assistance tapers off.  The fear is that business and residential tenants may be suddenly unable to pay rent beyond the sectors already impacted and struggling to come back,” DeBoer added.
  • The report’s Topline Findings include:
    • The Real Estate Roundtable Q2 2020 Sentiment Index registered a score of 38, a decrease of 14 points from the first quarter of 2020.   Many respondents confirm tenants are having increased difficulties paying their rent obligations as a result of massive job losses.  Most survey participants expect the eventual reopening of businesses and resolution of rental obligations will lead to improved real estate market conditions.
    • Many survey respondents have seen the industry quickly adapt to new social distancing environments by implementing technologies and online processes that provide some continuity for current operations.  Market volatility is leading to uncertainty about how future retail real estate and multifamily demand will be affected.
    • Job losses have led to widespread economic uncertainty.  Lockdowns and stay-at-home orders have also impaired the ability of survey respondents to accurately value commercial real estate assets.  As a result, transactions have slowed until a medical solution to the outbreak may allow reopening of properties, renewed business activity and underwriting of investments. 
    • The majority of survey participants indicated the availability of debt and equity are worse today than one year ago.  Many respondents indicated they believe there is plenty of equity capital on the sidelines, but it is unwilling to invest in a market without price discovery.  As for debt markets, debt funds have been largely absent from the market and only the most pristine assets are qualifying for new debt capital.  
    • The Roundtable’s Q2 Overall Sentiment Index is scored on a scale of 1 to 100 by averaging Current and Future Indices; any score over 50 is viewed as positive. 
  • The Q2 Current Conditions Index dropped to 13 from Q1’s score of 55 – yet the Q2 Future Conditions Index increased 12 points to register 62 when compared to Q1’s score of 50.
  • The 49-point disparity between the Q2 Current Index (13) and Future Index (62) is the most significant difference registered by The Roundtable’s Quarterly Economic Sentiment Survey in its 12-year history.  The next highest disparity previously occurred in Q1 2009, when the difference between current and future indices registered 40 points during the financial crisis.
  • DeBoer noted, “The unprecedented wave of job losses is disproportionally impacting women, minorities and veterans.  Unemployment and business closures have added tremendous stress on people worried about taking care of their families and maintaining their housing. And it also has added to the worries of business owners, particularly in terms of meeting their payroll and rent obligations.  The Roundtable continues to support the Federal government’s efforts to date including the CARES Act, the FED lending facilities and the expanded unemployment benefits.  In addition to finding ways to improve and extend these programs, we now call on Congress to create a temporary assistance program specifically designed to help COVID impacted residential and commercial tenants meet their rent obligations.”
  • He added, “Such a program would help people and businesses cope with the current economic downturn. It would help building owners maintain their workforce that is necessary to ensure that visitors to buildings are safe and  healthy.  It would ease pressure on financial institutions and local governments.  The next COVID relief bill must include a rent assistance program for people and businesses.”

Data for the Q2 survey was gathered by Chicago-based FPL Associates on The Roundtable’s behalf.  The Roundtable’s Q3 Sentiment Index will be released in early August.

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