CRE Professionals Pessimistic in Sentiment Survey

Commercial real estate professionals remain pessimistic about the market conditions in the year ahead. The September 2020 NAIOP CRE Sentiment Index came in with an average score of 45, indicating that market professionals have an “unfavorable” outlook for the next 12 months, according to the organization.

Respondents to the survey were more pessimistic than in the previous survey conducted at the start of the pandemic in mid-March. Pessimism increased in nearly all categories, including the outlook for the markets where respondents are active, as well as occupancy rates, face rents, effective rents and employment. The survey also shows an expectation that cap rates will increase nominally, but the outlook was on par with responses from the previous survey.

While the overall outlook showed continued uncertainty about the recovery, there were areas where respondents had an improved outlook compared to the start of the recession. Market processionals were less pessimistic about the availability of financing. Over the next 12 months, they expect debt to be as available as it is today and for equity to be more available, although only slightly. Respondents also showed improved outlook for construction costs. While they expect that labor and materials fees will continue to rise, respondents believe these costs will rise less rapidly than they believed in March.

In addition to the Sentiment Index, NAIOP also measured general industry conditions. This score significantly improved, increasing from 38 in March to 47. This score shows that property performance and market performance has been in sync with owners’ expectations.

NAIOP conducts the survey with its 10,500 members, which include developers, building owners, building managers, brokers, analysts, consultants, lenders, and investors in the office, industrial, retail and multifamily sectors. For the September survey, 341 professionals responded. A score of 100 is the most optimistic answer.

Other sentiment surveys’ have garnered a similar response. One recent survey from The Real Estate Roundtable also showed an improved outlook with an average score of 42. In addition, the report included a Current Conditions Index, which had an average score of 21—an eight points improvement over Q2—and a Future Conditions Index, which increased one point to an average score of 63. In addition, respondents in these surveys indicated that a widespread vaccine could accelerate the recovery. It also noted that public officials could help to improve the severity of the recession.