Q2 Economic Sentiment: Commercial Real Estate Execs Confirm COVID-19 Market Downturn

WASHINGTON, June 30, 2020 /PRNewswire/ -- Commercial real estate executives confirmed a downturn in Q2 market conditions due to job losses and business shutdowns related to COVID-19, according to The Real Estate Roundtable's 2020 Q2 Economic Sentiment Index released today.  The report also shows there is an expectation for an improvement in market conditions by next year, dependent upon the return of jobs and the ability to safely reopen businesses.

• "The commercial real estate industry, like all industries, experienced in the second quarter a sudden onset of economic disruption due to business lockdowns and stay-at-home shutdown orders put in place to combat the pandemic," said Real Estate Roundtable President and CEO Jeffrey DeBoer.  "The economic damage to commercial real estate has been particularly harmful for the retail and lodging sectors of the industry.  Although our Q2 survey results show there is hope for improved conditions within the next year, there are significant concerns that other sectors of the industry could be dragged down if jobs don't rebound and government assistance tapers off.  The fear is that business and residential tenants may be suddenly unable to pay rent beyond the sectors already impacted and struggling to come back," DeBoer added.

The report's Topline Findings include:

• The Real Estate Roundtable Q2 2020 Sentiment Index registered a score of 38, a decrease of 14 points from the first quarter of 2020.   Many respondents confirm tenants are having increased difficulties paying their rent obligations as a result of massive job losses.  Most survey participants expect the eventual reopening of businesses and resolution of rental obligations will lead to improved real estate market conditions.
• Many survey respondents have seen the industry quickly adapt to new social distancing environments by implementing technologies and online processes that provide some continuity for current operations.  Market volatility is leading to uncertainty about how future retail real estate and multifamily demand will be affected.
• Job losses have led to widespread economic uncertainty.  Lockdowns and stay-at-home orders have also impaired the ability of survey respondents to accurately value commercial real estate assets.  As a result, transactions have slowed until a medical solution to the outbreak may allow reopening of properties, renewed business activity and underwriting of investments. 
• The majority of survey participants indicated the availability of debt and equity are worse today than one year ago.  Many respondents indicated they believe there is plenty of equity capital on the sidelines, but it is unwilling to invest in a market without price discovery.  As for debt markets, debt funds have been largely absent from the market and only the most pristine assets are qualifying for new debt capital.  

The Roundtable's Q2 Overall Sentiment Index is scored on a scale of 1 to 100 by averaging Current and Future Indices; any score over 50 is viewed as positive. 

The Q2 Current Conditions Index dropped to 13 from Q1's score of 55 ? yet the Q2 Future Conditions Index increased 12 points to register 62 when compared to Q1's score of 50.

The 49-point disparity between the Q2 Current Index (13) and Future Index (62) is the most significant difference registered by The Roundtable's Quarterly Economic Sentiment Survey in its 12-year history.  The next highest disparity previously occurred in Q1 2009, when the difference between current and future indices registered 40 points during the financial crisis.

DeBoer noted, "When a huge wave of job losses sent our economy into triage during Q2, the downstream economic effects impacted all industries, including commercial real estate.  Now, The Roundtable is encouraging Congress to create a temporary assistance program specifically designed to help residential and commercial tenants meet their rent obligations, where they have suffered economic harm during the pandemic."  He added, "Such a program will assist CRE executives cope with the current dive in market conditions until an eventual medical solution can underpin renewed economic growth for individuals, businesses and the country."

Data for the Q2 survey was gathered by Chicago-based FPL Associates on The Roundtable's behalf.  For the full Q2 report, visit here.

SOURCE The Real Estate Roundtable