CRE MARKET CONFIDENCE INDEX
CRE Market Confidence Rises Modestly, Optimism Rises with News of Vaccine
The LightBox Market Confidence Index showed moderate improvement in the fourth quarter after the dramatic third quarter
uptick. Based on a broad-based survey of nearly 500 commercial real estate professionals across the U.S., the index now
stands at 141.3, slightly higher than 134.0 in the previous quarter and well above the second quarter’s 114.1 low point
(adjusted to an April 2020 baseline of 100). Barometers on market confidence continued to move in a positive direction
even against the tapestry of political uncertainty and a return to dramatic increases in COVID-19 infections. The higher
index reading is attributable to perceived improvements in the overall market, as well as an increase in respondents seeing
increases in their own business activity in the latest quarter. There is a growing sense from respondents that the market
seems to have turned a corner in late summer as property listings increased and motivated investors moved ahead with
deals, particularly in industrial and multifamily. Promising news of a vaccine points to light at the end of the tunnel, but the
recovery trajectory is decidedly uncertain. It is worth noting that, despite the unknowns, a solid 64% of respondents are
expecting a strong first quarter start to the new year.
Overall Market Conditions
The latest index reflects slight improvements on both
ends of the spectrum in terms of how respondents
view the overall commercial real estate market. Those
experiencing “improving” conditions increased from 35%
in the 3rd quarter to 40% in the latest survey, while those
who characterize the market as “worsening” fell slightly
from 25% to 21%, but dramatically below 55% at the
start of the pandemic in the second quarter. By region,
respondents were slightly more likely to report improving
market conditions in the Southeast (48%), Southwest
(48%) and MidAtlantic (47%) regions than respondents
in the Northeast (38%) and West (37%) regions.
Respondents’ CRE Activity
Another positive development in the 4Q20 results is that a
solid 60% of respondents reported a “slight” or “substantial”
increase in their own organization’s commercial real estate
activity, up from 49% in the previous quarter and only 24%
in the 2nd quarter. Asked to forecast what they expected in
the first quarter of the new year, it is encouraging to see that
percentage rise further. Twenty-two percent expect to see a
substantial increase in the first quarter, and a more significant
42% expect a slight increase over 4th quarter activity. Only
15% expect to start the new year with a decline.
Another factor that contributed to a positive increase in
the Confidence Index can be found on the staffing front.
Earlier this quarter, the U.S. Department of Labor released
its monthly Job Openings and Labor Turnover Survey,
which showed that job openings nationally increased
less than expected in September while hiring fell. That
certainly does not seem to be the case in the commercial
real estate sector. Seventeen percent of respondents
are at organizations that are actively hiring for new roles
versus only 9% that are downsizing.
Eight months into the pandemic, respondents are operating at an average 81% of their typical capacity, up slightly from 77%
in the third quarter. Despite the positive 4th quarter results, nearly half of respondents (47%) don’t expect the market to return
to pre-pandemic levels for another two to three years. Significant disparities by metro and asset class are also expected. As
one respondent shared: “Hospitality will take years, multifamily is in high gear right now, the effect of the pandemic on office
has not yet hit, and industrial is absolutely on fire.” Asked what types of properties are getting attention, industrial continued to
lead the pack (65%) followed closely by multifamily (62%) with vacant land (30%), followed closely by small store retail/strip
malls (28%). While two-thirds of respondents have yet to see any distressed assets hitting the market in their area, many are
mobilizing for what could be a “huge uptick as owners look to cut their losses.” Most, or 46%, expect to see higher volumes of
distressed properties, particularly in the hardest-hit hospitality and retail, in the second quarter of next year, while 28% expect
it to happen sooner—in the first quarter.
The results of the next confidence index survey will be very telling as the market gets more clarity in two key areas over
the next few months: the timing and extent of another round of federal stimulus, and how long it will take for widespread
deployment of an effective COVID-19 vaccine.
About the Market Confidence Index
The LightBox Market Confidence Index reflects prevailing business conditions across the commercial real estate sector and likely developments for the months ahead. This summary is derived from a monthly survey that asks participants for views on the overall market, their own operations in the current month and expectations about future business activity. The 4Q survey was open from October 15 through October 25, 2020. The sample consisted of environmental consultants/engineers (27%), appraisers (18%), brokers (16%), investors (28%), commercial real estate lenders (3%) and other commercial real estate professionals (8%). The Market Confidence Index is calculated based on respondents’ answers to three questions about overall conditions, their activity in the current month and staffing plans. The weighted score is then normalized to the index baseline of April 2020, the first month of data collection.