NAIOP Finds Drop in CRE Confidence

The latest semi-annual Commercial Real Estate Industry Sentiment Index from NAIOP finds a notable uptick in pessimism from industry professionals.
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The newest NAIOP CRE Sentiment Index has gone into negative territory for the first time since the biannual  survey began in 2016. Released Monday, the index both dropped below 50—the midpoint between optimism and pessimism—to 45 and fell substantially from the previous result of 57 in September 2019.

READ ALSO: Prologis Index Points to ‘Elevated Uncertainty’ for Logistics

An Index score below 50 indicates that unfavorable CRE conditions are expected in 12 months. NAIOP cautioned, however, that because the survey was conducted from March 11 to 25, during substantial turmoil from the COVID-19 pandemic, “the long-term outlook is better understood as a snapshot of industry sentiment than as a reliable predictor of future market conditions.”

Predictably, some individual components of the Index were hit harder than others. Expectations about occupancy rates, for example, fell to 44. In general, developers were slightly more pessimistic than nondevelopers.

Presumably because of rapid developments in the pandemic and responses to it, survey respondents’ expectations fell noticeably between the first seven days and the last eight days of the survey, the trade association said.

Difficult outlook

One survey participant said: “The response and recovery to the coronavirus will heavily dictate where real estate goes in the next 12 months. If the government can ensure this is a temporary blip as opposed to an ongoing crisis, the industry will be much better off. If not, it could be a domino effect of tenants not paying rent, landlords short on debt payments, lending institutions short on cash, etc.”

Another wrote: “With the current evolving virus crisis now severely impacting the economy, the immediate future of real estate investments is impossible to predict but appears to be much worse than previously thought. The next few months will tell, but a recession is at hand, and reactions in real estate typically will take 24-plus months of recovery once the bottom is reached.

A similar and very recent sentiment survey by Prologis, conducted solely among industrial-space users, noted heightened uncertainty in that sector, but stopped short of forecasting a recessionary environment. 

The NAIOP survey was based on responses from 439 companies out of roughly 10,500 NAIOP members in the U.S. Those members are developers, building owners or managers, brokers, analysts, consultants, lenders and investors in the office, industrial, retail and multifamily sectors.