Buoyed by Industrial Sector, Market Confidence Improves Slightly Overall Among SIOR Survey Participants

by John Nelson

The Society of Industrial and Office Realtors (SIOR) has released its second edition of the monthly SIOR Snapshot Sentiment Survey, and overall the association’s industrial specialists felt better about their market’s outlook than their counterparts in the office sector.

Patrick Sentner, president-elect of SIOR and executive vice president of CBRE’s Pittsburgh office, says that the growth of e-commerce and the grocery sector during the pandemic are helping boost confidence among industrial brokers.

“Certain industrial market segments have seen business increase steadily during the pandemic,” says Sentner. “As such, there has been some solid movement in the industrial sector during the past three months.”

The newly created survey provides a snapshot of the industry during a time when the COVID-19 outbreak has significantly impacted the industrial and office sectors.

The monthly survey posed three questions to its members, of which around 500 answered for the May edition. The first question asked the progress of transactions currently taking place. The second question asked respondents to rank their level of confidence six months from now for their local markets. The final question let participants write open-ended responses relating to trends and market changes affecting the industrial and office real estate sectors.

Overall market confidence is up slightly for SIOR members who were tasked with forecasting how their markets would look in six months. In the April survey, the average confidence level was 6.04 on a scale of one to 10, with 10 being the highest. In May, overall confidence was ahead slightly at 6.22.

Source: SIOR Snapshot Sentiment Survey, May 2020

SIOR plans to release a new sentiment survey every month for the rest of the year. Sentner, who will succeed current SIOR president Mark Duclos this fall, says that it’s a likely bet that market confidence among survey participants will continue to grow in the coming months.

“As more and more states begin to slowly ‘open up’ and companies begin to head back to the office, it stands to reason that confidence will gradually increase,” says Sentner.

When survey results are broken down by region, the dynamic between industrial specialists and less optimistic office brokers held true except for those from chapters in the Southwest and Great Lakes regions. Additionally, the international responders on average rated office prospects higher than industrial.

Only two regions had industrial brokers who on average ranked their markets above 7 on the optimism scale: the Mid-Atlantic and Northwest. On the other end of the spectrum, the lowest level of confidence came from office specialists in Canada (5.3), the Northeast U.S. and the West (both ranked 5.5).

During the write-in portion, several members indicated that companies will have to utilize office space differently to adhere to social distancing protocols, which could potentially create demand for more space.

“Some clients will need more space, some less and others may work from home,” wrote an office specialist in SIOR’s Minnesota chapter. “But the changing workplace is an opportunity for commercial real estate professionals to provide real value to our clients.”

A respondent from SIOR’s Arizona chapter predicted that the office sector will see a “major setback” and be slow to bounce back post-pandemic. The participant also said that the industrial sector has weathered the COVID-19 storm well, while the retail sector “will be squashed for a while.”

The survey asked respondents to look ahead six months, but an office specialist in the Maryland, Washington, D.C., and Northern Virginia chapter of SIOR stated the “real pain” of the pandemic won’t be realized in the industry for at least another six to 12 months.

“People forget, we lag the economy in commercial real estate as our deals take months and years [to complete].”

Deals move ahead
Overall deal velocity is improving as industrial and office specialists are moving forward on transactions in progress. About one-third of the SIOR participants stated that their deals were moving along on schedule in May, which is an increase from 28.2 percent in April.

The May survey also showed a decrease in delays by third parties such as government offices (25 percent in May versus 26.4 percent in April) and also less transactions put on hold by clients (30.1 percent in May versus 33.2 percent in April).

However, slightly more respondents said that their deals were outright canceled (nearly 19 percent in May compared to 18.3 percent in April).

The results bore out for both office and industrial specialists as there was minimal variance in the responses when broken down by property sector. However, one anonymous industrial specialist from the SIOR Florida chapter wrote that office leases have stopped or slowed to a “school zone” pace, while industrial deals are largely moving forward with some delays.

On the industrial side, an associate in the SIOR Carolinas chapter wrote that the industrial sector is as busy as ever.

Source: SIOR Snapshot Sentiment Survey, May 2020

“There’s been a large uptick in name-brand retailers and others looking for short-term warehousing space.”

Despite the better outlook for industrial compared to office, Sentner says that the survey’s results serve chiefly as an important reminder to the commercial real estate industry that investment sales and leasing activity in the industrial and office sectors is slowly improving during the pandemic.

“The key takeaway is that not all transactions have been eliminated or delayed, contrary to popular belief,” he says. “However, this still shows that two-thirds of all transactions are still not proceeding on schedule.”

Washington, D.C.-based SIOR has more than 3,400 members in 686 cities and 38 countries worldwide. Approximately 500 SIOR members participated in the latest sentiment survey. So far, two of these assessments have been completed, reflecting April 2020 and May 2020. SIOR plans to continue surveying members monthly for the remainder of 2020 and releasing the data via the organization’s website.

— John Nelson

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