By Meghan Hall
While the long-term fiscal and economic impacts of the current pandemic remain unclear for many, there could be a slight improvement on the horizon. According to a survey released by NAIOP, a commercial real estate development association at the end of May, while economic conditions caused by COVID-19 have largely remained the same since April, results indicate that conditions for development have modestly improved over the past month.
The survey was completed between May 18th and May 20th, and respondents represent a range of industry professionals, including investors, brokers, lenders, property owners and more.
Overall, the survey found that the pandemic’s impact on development projects, while still present, has moderated. The majority of respondents—62.5 percent— reported that delays in permitting and entitlement remained present. 57.2 percent of those surveyed also noted that there has been slower leasing activity since the beginning of the pandemic. By comparison, in an April survey, 70.4 percent of respondents reported that the outbreak was creating difficulties for obtaining entitlements, and 60.7 percent had indicated that they saw a significant decrease in leasing activity for projects. However, NAIOP also notes that for 32.1 percent of developers, state and local government obstacles remain a barrier to construction.
Additionally, the number of respondents who noted delays or shortages in construction supplies decreased from 31.1 percent to 19.1 percent between April and May, a sign that some supply chains may be opening up again.
“We are seeing a slight uptick in activity and indications that the immediate negative impact on commercial real estate development may be behind us,” said Thomas J. Bisacquino, NAIOP president and CEO in a statement. “The number of respondents who say the outbreak’s effects will linger longer than a year may signal that the economic recovery will be more gradual that initially expected.”
NAIOP’s survey also indicated that commercial real estate professionals are beginning to see more movement within the market. Increase development and acquisition activity—particularly in the industrial and the multifamily markets—were reported.
Around 25 percent of developers, owners, brokers and lenders stated they saw new industrial projects moving forward, an increase of seven percent from the previous month. Those who reported seeing an increase in multifamily development rose 4.7 percent. NAIOP added that acquisitions for both industrial and multifamily assets appear to be increasing; in May, the number of respondents who reported acquisitions of industrial and multifamily buildings increased by 5.3 percent and 10.4 percent, respectively. The numbers suggest that lending is beginning to stabilize, said NAIOP, and those in the industry are more comfortable in moving forward with deals.
However, when it came to office space, the majority of those surveyed stated that they had seen little development move forward, and almost no deal activity. Those reporting office building acquisitions declined slightly, to about 25 percent, while just over 70 percent reported seeing no deal activity during May. Retail deals also remained elusive, according to NAIOP, who reported that 85.6 percent of respondents stated they had seen no new development or deal activity over the past several weeks.
The data is meant to gauge how perceptions surrounding commercial real estate are continuing to change in light of COVID-19. NAIOP reports that many of its respondents over the past couple of months indicate that they expect the pandemic to impact their business operations for more than a year. As of the end of May, 54.5 percent indicated that they expect COVID-19 to affect business operations for a year or less. However, between April and May, the number of respondents expecting the impact of the pandemic to last more than a year has grown, from 36.4 percent in April to 45.5 percent in May.
The shift, says NAIOP, could indicate that those in the industry expect coronavirus to remain a public health issue for longer than expected. It also may indicate that commercial real estate professionals anticipate economic recovery will take longer.
“We envision this as a longer-term issue until either a cure, vaccine or 90% herd immunity has been established,” the report states. “All of these we view as taking [place] in the plus/minus 18 months’ timeframe with tailing economic recovery impacts.”