CRE Market Sentiment Plunges

CRE executives’ market sentiment “plunged as expected” in mid-2020, said RCLCO Real Estate Advisors, Washington, D.C.

The RCLCO Current Real Estate Market Sentiment Index, which finished 2019 at 64.9, fell to 9.2 in the newest twice-yearly survey, the lowest level since it began recording the index during the Great Recession. Index values below 30 indicate economic and real estate market stress.

“The nearly 56-point drop in so short a period mirrors the speed and depth of the damage that the pandemic has wrought upon the U.S. economy and real estate markets,” the report said.

RCLCO Managing Director Brad Hunter described the drop as not part of a normal cycle but a “sudden stop.” “Many sectors of real estate leapfrogged entire stages of the normal real estate cycle and went straight to the bottom,” he said. “The good part about that is, as they say, you can’t fall off the floor.”

Hunter noted many real estate executives and developers surveyed believe the worst is behind us, “at least for many sectors of real estate.” Relatively few of those surveyed–less than 16 percent–said they believe the markets will grow significantly worse over the next 12 months.

The report said the drop was a direct result of the economic shutdown and social distancing rules due to the COVID-19 pandemic. “The U.S. economy and job markets have been in full-blown downturn mode over the past several months, but may be finding the bottom now, and the economy and real estate markets–with some notable exceptions–are expected to return to growth mode over the next several quarters,” RCLCO said.

Respondents said the hospitality sector is approaching or at its bottom, with luxury and resort hotels the hardest hit. Most respondents said they believe recovery will begin within a year in the hotel business.

Most of those asked said the retail sector was “in full decline” in June, but there was wide variation between secondary regional malls (considered to be in the worst shape) and grocery-anchored community and neighborhood centers, which respondents view as holding up well.

Respondents said the office market could fall further. Opinions varied about the chances of recovery within the next year, reflecting uncertainties about the economy and the durability of the work-from-home trend.

The pandemic is boosting the industrial space market due to increased demand for deliveries during the lockdown, the report said. Participants called the cold storage and last-mile warehousing subsectors particularly strong.