Real Estate: Commercial Real Estate Development is at a Standstill, Broker Confidence Has Plunged

April 16, 2020 | News, Real Estate
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The continued spread of the COVID-19 outbreak is creating significant hurdles for many sectors of the commercial real estate development industry.

In New York City, the epicenter of the current crisis, development has slowed to a crawl. The Real Estate Board of New York’s Q1 2020 Quarterly Real Estate Broker Confidence Index shows very low sentiment.

“The survey found that, overall, for the first quarter of 2020, commercial broker confidence was 3.23, representing a 56% decrease since REBNY surveyed brokers in the fourth quarter of 2019, a decline directly attributable to the impact of the pandemic,” writes Erika Morphy of GlobeSt.com.

The New York Real Estate development industry is a $66 billion industry, and it is now shut down due to the pandemic. Lenders are expressing concern about recouping the loans on stalled projects in the region.

Brokers aren’t very optimistic about the months ahead either. “Overall real estate broker future confidence, which accounts for brokers’ 6-month forecast, is 4.38 out of 10, higher than present confidence, which stands at 2.84 out of 10,” writes Morphy

The Commercial Real Estate Challenge

The problem is spreading across the United States.

The Associated General Contractors of America at the end of March surveyed its members. They found that 39 percent of contractors reported that project owners had halted or canceled current construction projects. A recent National Multifamily Housing Council survey found that 55% of multifamily project contractors have experienced delays recently due to labor and material shortages.

Hospitality and retail are two of the hardest-hit sectors. Many hotels and retail stores are unable to pay rent right now, and cash flows have dried up. Lenders are backing away form loan commitments to develop tow projects in these sectors. Developers that have an equity stake in projects are reconsidering their development to move forward until this crisis has passed, and the economic outlook for the hardest hit commercial real estate sectors show signs of improvement.

Most agree that the long-term outlook for senior living facilities is positive in the short term. However, this subsector has ground to a halt. Several faculties across the county have seen a COVID-19 outbreak spread rapidly through the facilities. As long as the virus uncontained and untreatable, buyers and lenders in the sector are both keeping their checkbooks closed.

Developers are finding ways to deal with the slowdown. However, commercial real estate development will experience significant slowdowns until the economy reopens.

Recent: REITs: Big Insider Buying at Hudson Pacific Properties

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