Investor sentiment a mixed bag in 2021
Research from The Real Estate Roundtable shows that sentiment and confidence is on the up in early 2021. Drawing from the Q1 2021 Real Estate Roundtable Sentiment Survey, there appears to be some optimism about the fortunes of the industry, with the index reaching a score of 59, some 15 points up from the Q4 2020 results.
The overall index is measured on a scale of 1 to 100, and the index level is achieved by averaging two sub-indices, ‘current conditions’ and ‘future conditions’. A score in excess of 50 is viewed as positive,
Respondents – which includes executives from some of the top commercial real estate (CRE) firms – were even more optimistic about the future, with the ‘future conditions’ sub-index reaching a near-high of 79 points.
The report cautions, however, that outlook varies greatly across asset categories and portfolio mixes.
Two of the categories that proved to be relatively safe harbors in 2020, and are still resilient in 2021, are multifamily and industrial. These are, according to the report, “best positioned to emerge successful in a post-pandemic environment”. On the other end of the spectrum are retail and hospitality which – for all the obvious reasons – continue to be under pressure.
Follow the money
If we track capital flows and sentiment resilience on the same timeline, the report shows the two measures are largely in sync – with capital availability high for “high quality assets” (including industrial and multifamily). In the same way, developments with considerable exosure to pandemic risk factors struggling to find backers in “institutional equity and financing”.
Keeping largely in-step is the value metric, with industrial assets seeing an increase, while multifamily properties are reportedly still trading slightly lower than their pre-Covid values.
Another side effect of the “Corona-coaster” is reduced data, and with that, incomplete deal visibility. Specifically, the report says that the low volume of transactions means “limited visibility into asset valuations over the past year”.
Triangulating the research
These findings are in line with NAI Global’s own research from the end of 2020, Real Estate Outlook, in terms of which categories will be the ‘winners’ in CRE. It does take a slightly sunnier view than the last NAIOP CRE Sentiment Index which was based on survey findings from Sept 2020.
“Sentiment is always driven by prevailing news and conditions, but it feeds directly into matters like capital availability. When sentiment is down, lenders tend to circle the wagons and are much more cautious,” explains Jay Olshonsky, President & CEO of NAI Global. “It is buoying to see this ticking in the right direction, and it bodes well for future deal-making.”