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Market Update

What's the Latest with the Commercial Real Estate Market

September 30, 2020

<-- Previous Installment (09/15/2020) | Next Installment (10/22/2020) -->

Here's the newest edition of our continuing series on What's the Latest with the Commercial Real Estate Market.

To dive deeper into the state of the commercial real estate market and the economy here and abroad, keep on reading. (We have graphs!) Interested in watching a video on these market updates? Click here for our YouTube Channel.

TL;DR - The spring and summer seasons were a total bust from an economic perspective. But, the fall and winter seasons might actually be looking up.

Part I: Biggest Losers (And Winners)
There has been much discussion about what type of recovery we will see after the end of the coronavirus pandemic. Most experts agree that a "k-shaped" recovery is what we're currently seeing. This recovery is reflected both on an individual level - the wealthier are doing better than the poorer - as well as industrial level - the hospitality sector is doing worse than grocery store and online sales. Regardless of the recovery type, one thing is certain:

sales

From the chart above the Tampa Bay Partnership's COVID Recovery Update, we see within what industries in the Tampa Bay area either saw a decrease (red) or an increase (green) in state tax revenue. It is no surprise that the biggest losers were the restaurant and hospitality sectors - experiencing over $1.1B in missed tax revenue for the state. However, the biggest winners in the area over the last several months were home improvement and grocery stores. As more people stayed home, they needed to feed themselves and use some of that extra time at home to fix up the place.



Part II: Homebuilding Confidence
While the commercial real estate market may be taking some hits, the residential real estate market may be having its best sessions ever. The coronavirus pandemic forced may sellers to take their homes off the market, leaving an already small inventory even smaller. But, as more people stayed at home, more people started looking for new homes to buy. This surge in demand (coupled with record-low interest rates) not only increased prices but also confidence for home builders to build more housing.



From the chart above in collaboration with Calculated Risk and NAHB, home builder confidence for newly-built single-family homes increased five points to hit an all-time high of 83 in September 2020. In the housing boom years just prior to the Great Recession, home builder confidence hovered around 70. The previous highest reading of 78 was set both in August 2020 and again in December 1998.



Part III: Manufacturing Confidence
One the better but lesser known indicators for tracking the economy is the Institute for Supply Management’s (ISM) survey of purchasing managers. The sentiment survey reveals how confident manufacturers are when it comes to the future of their business and their industries.



From the chart above from a collaboration of FactSect and the ISM, we see that the survey reached its lowest point in over a decade during the spring of 2020. While that number has increased steadily over the last few months (mostly because companies were forced to shut down during the start of the pandemic) many of those surveyed believe we'll see a leveling off of this number of the next few months as uncertainty looms in the market and while companies hold off on capital expenditures.


Here's to the Fundamentals.
-Nico

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