Survey: Commercial real estate experts now predicting longer disruption period from COVID-19

Landlords expect tougher going in May rent collections; construction projects being delayed

Downtown Milwaukee skyline
Downtown Milwaukee skyline. Photo by Shutterstock

Last updated on May 15th, 2020 at 03:23 pm

Southeastern Wisconsin real estate industry professionals now expect the COVID-19 outbreak to have an even lengthier impact to business as more transactions are put on hold, construction projects see significant delays and landlords expect a tougher month ahead in collecting rent.

But even as people adjust their expectations they are also uncovering opportunities, industry officials said.

The results of a recent industry survey showed a majority of respondents (57%) expect the viral outbreak will seriously impact their business for at least six months. Specifically, 37.8% predicted impacts to last six to 12 months, and 19.2% said the impacts would be felt longer than a year.

This was in contrast to how industry experts were feeling just a few weeks ago, when a majority said the impacts would last six months or less. In a late March survey, 42.6% said they expected impacts to last three and six months, and 18% said less than three months. In this latest survey, those numbers fell to 30.4% and 9.4%, respectively.

Tracy Johnson, president and chief executive officer of the Commercial Association of Realtors Wisconsin, one of the industry groups collaborating on the survey, said the increased pessimism is to be expected as the viral outbreak plays out and people adjust to the new reality it has created.

However, brokers in all sectors of real estate are seeing opportunities from the outbreak, she said.

For instance, it’s widely believed that supply chains will repatriate in order for companies to be better insulated from disruptions like a global pandemic. E-commerce tenants are looking to occupy even more space as they deal with heightened demand during the outbreak. And then there will be repositioning opportunities in the retail sector as more space becomes available, Johnson said.

“They (brokers) are not saying, ‘Everything is shut down,'” Johnson said. “They’re saying, ‘We’re going to keep chasing the opportunities are out there.'”

Andrew Hunt, director of the Marquette University Center for Real Estate, echoed Johnson’s sentiment.

He said that growth can occur once industry professionals come to grips with a post-coronavirus reality. He said he’s seeing that acceptance now starting to happen.

“Not that it’s without pain, but it will lead us to a better place” as the industry starts to adjust and innovate, said Hunt.

Among the survey’s other findings:

  • More than a quarter (28%) of respondents said more than half of transactions in their pipeline have been put on hold or outright canceled since the start of the COVID-19 crisis; only 11.8% said all their deals will still go through
  • A majority (71.3%) of landlords said they collected more than 80% of their typical rents for April, and 8.3% collected all of their normal rents for the month
  • Meanwhile, 52.7% of respondents said they expect rent collection in May to be worse than April, while about 40% said rent collection would be about the same next month
  • Despite being allowed to continue during state and local shutdown mandates, only 35% of respondents said all of their construction projects were continuing without significant (90-plus day) delays

Johnson said she wasn’t surprised to hear that so many construction projects were being delayed. She pointed to potential issues with contractors not being able to get the materials they need, or some subcontractors or trade groups opting not to show up to a job site if they don’t deem the work as essential.

“Construction is one of the few bright spots for economic activity at the moment, but potential supply chain issues, and of course continued public health safety issues may impact this over the next month,” said Jim Villa, chief executive officer of NAIOP Wisconsin.

Contractors have had to make adjustments to scheduling, add extra safety practices to minimize exposure on job sites and pause projects altogether.

For instance, construction of the BMO Tower was impacted after two workers on the job site came down with the coronavirus. Construction activity continued after brief pauses and the new downtown Milwaukee office building opened to tenants last week.

Construction of the Third Street Market Hall, however, has been put on hold during the outbreak. The new food hall is being built on the first floor of The Avenue development in the Westown neighborhood.

In an email earlier this month, a spokeswoman with the food hall said construction was halted because “we do not find our project urgent enough to put anyone in harm’s way.” The work will resume once it’s deemed safe enough to do so.

Hunt said it was a good sign that most landlords were still collecting at least 80% of rent so far. This means they are likely bringing in enough revenue to keep up on mortgage and loan payments of their own.

The latest survey was conducted between Monday and Tuesday, and results were released on Wednesday evening. The survey gathered responses from 286 people. Similar to the March survey, a majority of respondents were either brokers or property developers, investors and/or owners.

The groups putting on the surveys are: Marquette University Center for Real Estate, CARW NAIOP Wisconsin, Wisconsin CREW, Building Owners & Managers Association of Wisconsin and IREM Milwaukee.

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Alex Zank
Alex Zank covers commercial and residential real estate for BizTimes. Alex previously worked for Farm Equipment magazine and also covered statewide construction news at The Daily Reporter. He graduated from the University of Wisconsin-Eau Claire, where he studied journalism, political science and economics. Having grown up in rural western Wisconsin, Alex loves all things outdoors, including camping, hiking, four-wheeling and hunting.

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