Graphs and Observations

Download the Spring 2020 NAIOP Sentiment Index Report. 

Notable Changes From the September 2019 Survey

Figure 3 compares respondent expectations in March 2020 for the individual components that comprise the NAIOP CRE Sentiment Index to respondent expectations in past surveys. Values above 50 represent expectations that a condition will be more favorable for development in 12 months (e.g., higher face rents, lower construction labor costs, or lower cap rates). Values below 50 represent expectations that a condition will be less favorable during the next 12 months.

Respondent projections were significantly less favorable for development than in September 2019 for every condition except construction materials and construction labor costs. Respondents expected construction costs to be higher in 12 months, but expected these costs to grow less rapidly than they had in September. While slower growth in these costs may be favorable for development, this difference could also signal that respondents believe there will be less demand for materials and labor due to a slowdown in the construction industry.

The March 2020 survey included a new question for developers on whether they expected the overall dollar value of their projects and acquisitions to grow or shrink over the next 12 months (not pictured). This question allows for an evaluation of developer intentions in addition to their outlook for market conditions. On average, respondents indicated that they expected their own development and acquisitions activity to shrink slightly over the next 12 months, with a score of 44. This figure is close to the composite index score of 45, suggesting that developer intentions closely align with their expectations for future market conditions.

Figure 3

New Data: Expectations for Development Conditions

For the first time, the March 2020 survey asked developers to evaluate how important interest rates, local economic conditions, local development approvals processes, environmental regulations, and other government regulations would be to their decisions to initiate or continue development projects over the next 12 months (the answers were not factored into the NAIOP CRE Sentiment Index). The survey then asked developers how favorable they expected these conditions to be. The results are described in Table 1 on a 100-point scale.

Table 1

Respondents expected economic conditions — the factor they considered most important — to be only slightly favorable (above 50). While also important, they were less optimistic about local development approvals processes, environmental regulations, and other government regulations such as taxes or rent control (the survey did not foresee mandatory business closures associated with the outbreak, but some respondents may have taken these into account). Respondents indicated that they expect interest rates to be very favorable for development in the months ahead. While the survey was fielded, the Federal Reserve cut interest rates and indicated that it would take additional steps to increase liquidity in response to the outbreak.

New Data: Comparisons Among Professions and Property Types

Two differences emerged when comparing the responses of developers to non-developers (see table 2). On average, developers indicated that it was slightly unlikely their firms would hire employees in the next 12 months, while non-developers indicated their firms were slightly likely to hire more employees. Developers were also slightly more pessimistic about industry conditions than non-developers about general industry conditions in 12 months.

Table 2

There were two observable and statistically significant differences in the results when comparing respondent specialization by property type (see table 3). At the time of this survey, professionals specializing in office properties were the least pessimistic about occupancy rates, followed by those who specialize in industrial properties and multifamily properties. Multifamily developers found interest rates to be more important to their development decisions than office or industrial developers.1

Table 3

Direct From Survey Participants

“ I would have answered the survey differently two weeks, ago but coronavirus has us all a bit uncertain.”

“ I'm submitting this survey at the beginning of a broad shutdown due to the coronavirus, but I'm hopeful the impact will only last about a month.”

“ COVID-19 is a wild card. Hopefully it will be short-lived and we'll be back to normal soon. But it certainly has shaken things up. With the volatility in the stock market, it could push people to invest in real estate.”

“ The coronavirus and record-low oil and gas prices are creating unanticipated risks that could be very damaging.”

“ I believe the greatest known unknown is the extent to which COVID-19 and geopolitical upheaval will impact supply chains and capital availability.”

“ With the current evolving virus crisis now severely impacting the economy, the immediate future of real estate investments are impossible to predict but appear to be much worse than previously thought. The next few months will tell, but a recession is at hand, and reactions in real estate typically will take 24+ months of recovery once the bottom is reached.”

“ We are already seeing banks say they are not willing to lend to new clients in multifamily. They will service existing relationships but not do new relationships for lending.”

“ I expect the next at least six months to be very tough due to COVID-19. I expect slower economic activity resulting in lower rents, lower prices and increased vacancy. However, once the virus fears are cleared, I expect a rapid recovery. Whether that recovery happens in 12 months or later is unclear.”

“ The response and recovery to the coronavirus will heavily dictate where real estate goes in the next 12 months. If the government can ensure this is a temporary blip as opposed to an ongoing crisis, the industry will be much better off. If not, it could be a domino effect of tenants not paying rent, landlords short on debt payments, lending institutions short on cash, etc.”

“ Coronavirus presents challenges to our industry we need to explore. Will we work from home? Will we not go out to restaurants and shop? How will we network?”



1 Only 30 respondents indicated they specialized in retail real estate. Observable differences between these respondents and other respondents are not statistically significant. NAIOP did not evaluate differences in firm employment projections by property type, as an individual respondent’s sectoral specialization may not be representative of their entire firm. For this question, differences between professions are likely to be more meaningful than differences by property type.


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