NAIOP Coronavirus Impact Survey Finds Tempered Optimism Among Delays and Negotiations
Last week, NAIOP surveyed its members on how the coronavirus has affected their businesses and local markets, and how they are responding to the outbreak. The survey results provide insights into how the outbreak is affecting development and the measures that commercial real estate firms are taking to retain tenants, improve safety and mitigate the financial effects of the outbreak.
The survey was completed by 446 NAIOP members between April 20-22, 2020. Respondents represent a range of professions, including developers, building owners, building managers, brokers, lenders and investors.
Below is an overview of the survey results with direct quotes from the participants (in italics) followed by key data from the survey and a profile of respondent characteristics.
Impact on Business Operations
At the time of the survey, members were relatively optimistic about the impact of the events on the coronavirus on their business operations. Respondents were most likely to expect that the outbreak will significantly impact their businesses for 6-12 months, but only about a third expect the impact to last longer than a year.
Relatively few developers, owners, building managers or brokers are reducing staff (14.7%), staff hours (9.9%), or compensation (17.8%) at this time. Most of these respondents (62.4%) report asking some or all of their employees to telework.
Almost half (46.9%) of developers, owners and building managers report applying for or are considering a Paycheck Protection Program loan to cover costs of payroll, mortgage, rent or utilities. These loans may be helping a significant portion of commercial real estate firms avoid layoffs and furloughs.
“We’re trying to come up with polices as to how we return to office. How many employees at a time? How long?”
“I am hopeful, but the COVID issue will be with us for some time in the foreseeable future until a vaccine is produced and distributed nationwide. The new normal is here to stay for a while.”
“Working from home actually is going fairly well, but the market for development consulting is getting soft.”
“Workflow is transitioning from COVID-19 response to recovery.”
Impact on Development
Not only is the pandemic affecting ongoing or planned construction projects, it is also impacting acquisitions and local deal volume. Industrial and office acquisitions continue, while retail lags behind.
Few respondents report seeing new development in the last three weeks, but sizeable minorities have witnessed industrial and office building acquisitions. Only 18.5% of developers, owners, brokers, and lenders report witnessing new industrial real estate development projects. Meanwhile, 16.8% say the same about multifamily development. However, 46.4% of these respondents have seen deals to acquire existing industrial buildings and 30.5% have witnessed acquisitions of office properties. Retail property deals are very rare, with 86.6% of respondents indicating they have seen no new development or acquisitions in this sector in the last three weeks.
Most developers (70.4%) report that the outbreak has created delays for obtaining entitlements, and most (60.7%) report a significant decline in leasing activity for current projects. About a third report outbreak-related delays or shortages in construction supplies (31.1%), delays due to construction worker shortages (34.7%), delays due to social distancing at construction sites (37.2%), or a halt to construction mandated by a local or state government (34.7%).
“I am with Investors Bank. We are doing our best to manage the overwhelming requests for payment deferrals as well processing the SBA’s PPP, while also staying open for business. We have actually closed close to $200MM in new business over the past few weeks, mostly construction deals.”
“My business is mainly retail and before the shutdown due to the virus, my business was thriving. I had two deals that were scheduled to close escrow in April along with 5 lease deals that were pending. Shortly after the shutdown, every one of my deals have cancelled. I think it will be over a year before Las Vegas gets back to some sort of normalcy.”
“All new equity deals and acquisitions are pretty much paused. Current projects under construction continue to move forward. Still seeing fairly decent leasing activity although many seem to be moving slower. Most people feeling industrial will benefit long term from this crisis.”
Maintaining Buildings as Well as Relationships with Tenants
NAIOP members indicated they are working with their tenants across retail, multifamily, industrial and office property sectors to not only improve building safety but assist them with their rent payments.
A majority of developers, building owners and managers report increasing the frequency of cleanings at their properties (78.4%), communicating hygiene and safety guidelines to tenants (75.0%) and closing common amenity areas (55.8%) to improve safety. Respondents report distributing hand sanitizer and disinfectants to tenants (39.9%), asking tenants to telework when possible (30.3%), closing properties for additional cleaning when an occupant has tested positive for coronavirus (29.3%), or closing properties to accommodate state or local mandates (28.9%).
Developers, owners and building managers are most open to working with tenants by allowing them to delay payments and amortize them over the remainder of the lease (indicated by 77.3% of respondents). A majority (55.5%) are open to extending the term of a lease in exchange for rent relief. However, over two-thirds are also considering or currently requiring that tenants provide them with financial information to substantiate that they have incurred losses due to the outbreak.
How long do you expect the events associated with the coronavirus outbreak to significantly impact your business operations?
How has the coronavirus outbreak affected your current development projects (select all that apply)?
What steps are you taking to improve the safety of your properties (select all that apply)?
What strategies is your firm most seriously considering or currently pursuing when working with tenants to adapt to the outbreak (select all that apply)?
What types of commercial real estate acquisitions or new development have you witnessed occurring in the last three weeks in the markets in which you are active (select all that apply)?
What adjustments to staffing does your firm anticipate making over the next three months (select all that apply)?
Which of the following CARES Act benefits is your firm applying for or considering (select all that apply)?
Which of the following best describes your primary profession?
Which of the following property types do you currently own or operate? For mixed-use properties, please select all uses that apply.*
VisVisit the NAIOP Response: COVID-19 page for critical resources and knowledge to support you now.
As NAIOP Research Director, Shawn Moura manages the NAIOP Research Foundation research committee and day-to-day operations of the Foundation’s research projects.
NAIOP’s Vice President for Knowledge and Research Jennifer LeFurgy, Ph.D., directs knowledge and research activities and serves as the Editor in Chief of Development magazine.