It’s not the outright fear or negativity surrounding the COVID-19 outbreak that most concerns those in the commercial real estate (CRE) industry. Rather, it’s the uncertainty.
That’s according to a market confidence survey polling those in the broker, appraisal, lending, investing and environmental consulting/engineering sectors on how they have been impacted by COVID-19 and the resulting recession. LightBox, a real estate technology firm, conducted the poll from mid-April through the end of the month.
The survey indicates that the top three concerns for CRE professionals are the unknown duration of the pandemic, rising unemployment and the difficulty of accurately forecasting business activity.
“There is no shortage of uncertainty about when sellers will be comfortable putting properties back on the selling block, when lenders will be less skittish about originations or when the impact of the pandemic on property values is clearer,” says Dianne Crocker, principal analyst with LightBox. “Ultimately, the effects on the commercial real estate market will vary by geography and asset class and will depend primarily on how quickly the health crisis is controlled and the duration of the economic shutdown.”
Lenders, consultants, appraisers and others in the field fear the consequences of instability on their businesses long term, but current realities are similarly harrowing. Of the respondents, 74 percent have experienced a slowdown in transactions and prospective projects, while 46 percent report deal delays specifically related to inability to access sites for inspections. Only 11 percent of survey respondents indicated that they had experienced no negative impact to their productivity levels.
Among those surveyed, 30 percent have implemented a hiring freeze or have delayed hiring plans specifically because of the pandemic and its fallout, while 22 percent are actively downsizing.
Hesitance for some, haste for others
Reluctance seems to be the plan for many. About one-third of respondents noted fewer new listings for properties and difficulty in arranging financing. Brokers noted that sellers are waiting to see how prices will be impacted by the shutdown.
Impediments to getting deals done included physical barriers: Nearly half of those surveyed said that a lack of access to sites for inspections (either because of site restrictions or health concerns on the part of assessors) had created delays. Similar difficulties (for 37.7 percent) arose as CRE professional were unable to obtain property data due to closures nationwide.
Nearly a quarter of those surveyed reported a rush to complete late-stage deals, particularly in cases where financing was already secured and due diligence completed.
In the near future, some brokers anticipate a surge in new properties on the market as uncertainty dies down and deals resume. This surge will be accompanied by an uptick in demand for reliable tenants as “buyers consider an asset’s robustness and cash flow projections under a new set of market conditions,” according to LightBox’s report.
The majority of respondents indicated that hope for a fast, “V-shaped” recovery was dead, with 53 percent indicating that they anticipated full recovery would not occur until August or later. Particular segments of those surveyed were more optimistic as whole: brokers, investors, consultants and engineers anticipated a faster and more complete return to normal than their significantly impacted peers in appraisals or lending.
— Sarah Daniels