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Member Perspectives: October 2021

One year of results from the Bergstrom Center Survey have been recorded. The past year has been interesting and uncertain but our members of the real estate industry held a positive outlook throughout.

The most challenging time was during fourth quarter 2020, our initial survey period. Economic restrictions such as restaurant closings and office “stay at home” mandates had peaked and appeared to have no end. Vaccines were pending but not approved. The shock of this new virus had passed but the challenging realities of overcoming it were increasingly apparent. During this most difficult time, responses to our real estate market questions were neutral or better.

Since that first questionnaire, quarterly responses have been systematically stepping toward optimism. The charts that follow will show a repeating pattern of fewer “weak” responses and more “strong” responses over time. It seems that the real estate community was reserved but hopeful one year and ago and have become increasingly positive as each quarter passes.

Notwithstanding the overall market optimism, some respondents see the near future through a bug smeared windshield. Although a minority at this stage, some answers come through as “weak” or “declining.” For those of us who focus on a single sector, the current environment can be great or very challenging. We will see in the investment charts that a couple of sectors are highly favored and a couple of sectors are viewed poorly.

For the first time this quarter, we included some questions about the single-family housing market. This addition was in response to comments submitted in previous surveys. For sale housing has been a valuable addition to our survey. The results offer confirmation that most of the market participants view the environment in a similar way.

Responses from each of the quarterly surveys for a selection of the questions follow. Each column of each chart shows the percentage of respondents who gave a specific answer in a given quarter. The text associated with each chart describes some of our observations and suggests some points on the chart that warrant focus.

Responses

What is your current overall outlook for your real estate market?

The first chart captures the broad general perspective of our group. The first column in each grouping is from our 4Q 2020 survey. These columns show that the industry had a very neutral outlook at that time. Keep in mind that the world economy came to a halt in the second quarter and had not recovered at this point, no vaccines were yet available, and people were working and schooling from home over video. By mid-year 2020, US Real GDP had fallen by more than 10%. Third quarter GDP rebounded significantly but did not bring the production level back to the beginning of the year level. Thus, at the time of our initial survey, the US economy was attempting to recover from recession. Despite the economic conditions, real estate professionals viewed the future as neutral or better.

Figure 1 — Source: UF Bergstrom Real Estate Center

Results from the most recent three quarters show a steady progression from neutral to quite positive. Notice how the percentage of responses in the Weak and Stable categories decrease in each subsequent quarter and the Strong and Very Strong categories step up in opposing fashion. By the current quarter, 3Q2021, 74% of the respondants viewed the real estate outlook as Strong or better.

Compared to the most recent year, do you expect to do more or less business in the coming year?

Expectations for the coming year’s business followed a similar pattern from neutral to very positive over that past four quarters. Initially, about a third of the respondents expected to see Less business, a third expected business to be the Same as Last Year, and a third expected to see More business in the coming year. This perspective improved significantly during subsequent quarters. The current expectation is that real estate professionals will be significantly more busy in the coming year than they were over the past year.

Figure 2 — Source: UF Bergstrom Real Estate Center

Is the number that your firm will hire over the coming year more or less than last year?

Given the expectations for future business shown in Figure 2, the pattern in Figure 3 seem either inconsistent or the result of incredible foresight. The general trend exposed in Figure 3 is toward hiring fewer new employees in the coming year than during the past year. About 40% of the responses are consistently in the Same category. Around this central tendency the weight of responses moves from More to Less, which seems inconsistent with the expectation that real estate will generate more business in the coming year. Perhaps, and this is a stretch, firms anticipated this expansion in future business and expanded staff during the time that the market was most challenged. This is a relationship that we will continue to monitor.

Figure 3 — Source: UF Bergstrom Real Estate Center

Which sector offers the best new investment opportunity today?

Figure 4A — Source: UF Bergstrom Real Estate Center

Which sector offers the poorest new investment opportunity today?

Figure 4B — Source: UF Bergstrom Real Estate Center

The two charts in Figure 4 reveal the great divide between the market views on the various sectors. The Multifamily and Industrial sectors are labeled as the most likely to produce good investment results. Interestingly, the market is evenly split between the two sectors as to which one will be best. Furthermore, this relationship among the sectors is consistent over time. There is a small percentage of our population that believes Office or Retail will be the best performing sector. This group may be considering the contrarian position of avoiding high priced sectors and acquiring underappreciated assets in anticipation of recovery.

Completely fitting with the first chart, the second chart shows that the market is evenly split between Office and Retail as currently the poorest investment sector. It seems that confidence in these two sectors is weakening just slightly as the percentage of respondants choosing each sector as best fell from above 50 to approximately 40 during 3Q2021. Perhaps the few members who selected Multifamily or Industrial as the poorest opportunity are concerned that expectations for these two sectors is too high, and again as contrarians, target the out of favor sectors.

What is your current overall outlook for your single-family housing market?

Figure 5A — Source: UF Bergstrom Real Estate Center

New home builders in your area are:

Figure 5B — Source: UF Bergstrom Real Estate Center

The first time that we asked about the single-family housing market we received very clear signals. 87% of our respondants suggested that their housing markets are Strong or Very Strong. Only 2% viewed this sector as Weak. Furthermore, the second chart indicates that 69% of our members view the housing market as Hot and 22% believe that builders are Selling Upon Completion. Any way that we interpret these charts we receive confirmation that most members see the current housing market as transacting well about its average rate.

Please look for this survey series to continue in coming quarters. It is the trend of our collective perspectives that offers insight to our real estate markets.