The NAIOP Commercial Real Estate Sentiment Index has dropped to 45 for March 2020. This is the first time the index has fallen below 50 since it began in 2016.

The drop is 12 points lower than the reported CRE industry sentiment of 57 back in September 2019. Typically, a score below 50 would indicate unfavorable CRE conditions for the next 12 months. However, the survey was conducted from March 11-25 just as the U.S. began to react to the COVID-19 pandemic. NAIOP, a trade association for commercial real estate developers, owners, investors and service providers, said this drop is better understood as a snapshot for industry sentiment rather than a reliable predictor of future market conditions.

For comparison, the average sentiment for employment dropped from 74 in September to 51 in March. The average sentiment for available equity and debt also dropped sharply.

The outlook for construction looked a little different, though. Construction material costs and construction labor costs outlooks both improved, which NAIOP said could signal that respondents believe there will be less demand in these areas due to a slowdown in the construction industry.

One other aspect to note is that respondents' expectations about general industry conditions fell between the first seven days and the last eight days of the survey, NAIOP reports. "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," they said.

A total of 439 companies answered the survey, which was sent out to 10,500 NAIOP members. Those members consist of developers, building owners, building managers, brokers, analysts, consultants, lenders and investors in the office, industrial, retail, and multifamily sectors. Western regions were slightly more represented than easter regions, according to the organization.

The NAIOP Sentiment Survey is conducted twice a year and will be re-administered in September.