The only bright spot in a national real estate market in terrible shape, thanks to COVID-19, is an uptick in demand for industrial warehouse space due to increased online shopping deliveries during lockdowns, according to a recent survey. Cold storage and last-mile warehousing are particularly strong.
Other sectors least affected by the pandemic are health care/medical and rental apartments, according to the 2020 Mid-Year Sentiment Survey, conducted by real estate advisory firm RCLCO.
Sectors expected to feel the downturn most are retail-regional malls, hospitality and big-box retail. Hotels are expected to begin a recovery within the next year but the office market is still seen in decline, with varying opinions among participants as to the chances of recovery in the next 12 months, reflecting uncertainties about the economy and durability of the work-from-home trend.
Leaders of the real estate sector indicate the severe declines are in the past, although some sectors are still in moderate decline.
Twice a year, RCLCO polls its extensive network of contacts, including hundreds of C-suite executives and other leaders in various sectors of real estate, to determine views on the current and future state of the real estate sector. The analyzed results are used to construct the RCLCO Current Real Estate Market Sentiment Index (RMI), which expresses sentiment about current conditions by sector, as well as the outlook one year from now.
Sentiment Index Plunged
The index plunged as expected in mid-2020, to a low of 9.2—its lowest level by far since RCLCO began the index in mid-2011.
Prior to the pandemic, the index was just under 65, within the range typically indicating "very good market conditions," according to RCLCO.
Future RMI, now at 36.8, calls for some continued declines in conditions, but also the beginnings of recovery in a few sectors, within a year.
Most surveyed think the multifamily rental, active adult and for-sale residential sectors have already hit bottom, along with land, except the second home/resort and seniors housing sectors are still in full downturn mode and may have some time before hitting bottom.
Within the next year, home builders, subdivision developers and master-planned communities are expected to be past the downturn and well into “stable” business conditions.
In the hospitality sector, luxury and resort hotels are hardest hit, according to respondents. Retail was mostly seen in “full decline” last month, but there is a wide variation between secondary regional malls--considered to be in the worst shape of all--and grocery-anchored community/neighborhood centers, which are viewed as holding up well.
RCLCO says the change from its last survey six months ago, is striking, with nearly 90% of respondents indicating that national real estate market conditions have gotten moderately or significantly worse compared to one year ago. This is a dramatic shift from the last survey at the end of 2019 when only 13% of respondents indicated that the market was only moderately worse than the previous 12-month period.