The covid-19 pandemic has affected every sector. The results of the same can be seen in the real estate industry. It has been a significant setback for real estate during the pandemic time.
However, as the covid-19 norms are getting easier and things are getting back to normal, there is now a great demand for real estate properties expected to grow further in the coming time.
The CRE Finance Council has made some predictions about the real estate industry, which is more likely to be seen in the future time. Here check out the details to understand the current situation of the market.
What does CRE have to say?
The CRE Finance Council which represents the $4.8 trillion multifamily and commercial real estate finance industry, recently announced the 2nd quarter of 2021. It was a special survey conducted for the covid-19 situation.
Also, the CREFC Board of Governors Index Survey was conducted to identify the current situation of the real estate market. The results of which showed a continued positive outlook on multifamily and commercial real estate finance.
83% of the Board had an overall positive sentiment about the increase in the demand for commercial real estate finance business in the upcoming 12 months. The rise is expected to be 72%, which is higher than what was seen in Q1 of 2021.
CREFC derives the quarterly sentiment index from the response of the Board to 10 crore questions about the current state of the CRE finance market that has been presented to the Board each quarter beginning the fourth quarter of 2017.
The ten questions across the Q2 sentiment remained unchanged from the positive views reflected in the Q1 index underscoring continuous positive response in the CRE business in the upcoming 12 months.
Adding to the continued confidence in the upcoming quarter, the result has decreased the negative outlook towards the CRE fundamentals and their expected impact on finance-related business performances.
Among all the board members, only 10% held a negative view about CRE fundamentals, which was 13 % in Q1 and has reduced to 43% in Q4 2020.
However, the board members have a primary concern about the regulations’ potential to negatively impact finance-related business performance and the government policies rising to 30% in this quarter from 13% in Q1.
The Executive Director of CREFC, Isa Pendergast, said as the covid-19 restrictions are lifted across the state and the country the economy is reopening.
As a result, there is a strong hope for the economy to recover as investors can now move off the sidelines. She further added there is, however, a concern about the government regulations and policies and how they will impact commercial real estate.
CREFC thus is closely monitoring all the decisions that would impact the industry and providing the members with up-to-date analysis and data of the scenario.
Adding to this, she said as we are moving forward in the recovery period across the industry, I look forward to the insides and prospective of the board members.
Special BOG covid-19 survey
Besides the long-standing BOG Sentiment Survey and Index, a new step was taken to analyze the impact of the covid-19, and an incremental survey was introduced beginning in the first quarter of 2020, which was focusing especially on the impact of the covid-19 pandemic on the commercial real estate sector.
As a result, the current results of the covid survey reflected a continued upbeat outlook. Here are all the details of the same.
• Increase in transaction and lending
The Q2 survey done for the covid-19 situation showed a continued increase in transactions and lending activity. About a third of the members indicated a positive increase in the activity today than before the pandemic.
• Increase in fully operational lending programs
Most of the CREFC lenders indicated that the lending programs now operate fully with about 71% in Q1. At the same time, only 5% indicated no lending.
• Leisure travel recovery with corporate travel lags
Almost 80% of board members expected a fast recovery of leisure travel from 76 % in Q1. While only 14% of the total Board can state the same for corporate travel.
• Concerns for office remain post-covid-19
Retail in the current scenario is joined by 69% office as the property type, which is the biggest worry for the board members. Many believe the uses of retail and office will change drastically after the pandemic.
• Continued stress on retail assets
The BOG views retail heading to the worst scenario and industrial as outperforming all the other asset classes in the pandemic situation. The use has remained constant during the pandemic wherein the BOG expects the retail to face the worst scenario and the industrial sector to grow tremendously.
Industry Sentiment- What to expect?
Overall all the panelists showed a positive sentiment for the upcoming future of the commercial real estate industry. However, it is the covid-19 vaccine that has helped alter the views the panelists generally cited the health state of the banks, commercial real estate industry, and financial markets during the pandemic situation.
Properties that face the most challenges included hospitality and retail. However, the loan service gets active judicially with property owners to provide relief for avoiding foreclosures with lesser activity than expected, given the dire situation of the covid-19 pandemic.
In the foreclosure and REO, the assets remained low at 1.2 % and 1.0 %, respectively, across the markets as of December 2020.
While in the office sector, the panelist has predicted a return in 2021 by citing the important factors as of critical importance for getting back to the office in person for mentorship and fostering a collaborative and healthy corporate culture for advancing one’s career path.
Further, some panelists even noted that they are already back in the office while the others are looking for assurance of vaccination before beginning the work.
Property fundamentals
It is not a hidden secret that some properties have performed better than others despite the pandemic situation. The retail sector before the covid-19 was in distress and continues to suffer greatly but, now made progress with an increase in e-commerce.
The demand for E-Commerce has created an incompatible demand for industrial space, which will help the commercial real estate sector positively. Further hospitality suffered a great setback, but the sector has started to gain back strength through conferences, group meetings, and travel.
The office market currently remains strong as long-term leases are in place. It has helped keep the sector sturdy. It is expected that after the pandemic situation, many companies will go through a rightsizing exercise, meaning the space holistically must meet the needs of the post-pandemic workforce.
Many of them will decide to walk from home as there is a sense of stress in the office sector. However, there is a possible chance of things returning to their normal state.
Conclusion
The covid-19 pandemic has been a significant setback for the real estate industry. However, with all the advancements, the sector can now get back to its original shape and operate well.
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