Supply Issues Continue To Plague CRE, Larger US Economy

Although business conditions have improved for commercial real estate, supply chain disruptions continue to plague CRE and the larger US economy, NAIOP cautions.

The close to nine out of 10 developers reporting delays or shortages in construction supplies in the most recent NAIOP COVID-19 impact survey suggests supply chain disruptions may outlast other effects of the pandemic, increasing construction costs and slowing new development.

“The materials and supply chain issues are lagging effects of the pandemic, and they are affecting every industry,” says Thomas J. Bisacquino, president and CEO of NAIOP. “ “While the pandemic’s impact was deep, there’s a sense of optimism among NAIOP members, with deal activity rising and an increase in people returning to offices, restaurants and retailers.”

It is optimism NAIOP says its members showed for the first time since the organization began the coronavirus impacts survey, with many respondents reported witnessing some type of retail acquisition or development activity: nearly one third (31.3%) reported new retail development, and 39.1% reported acquisitions of existing retail buildings, marking a sharp increase in both measures since the January survey.

The trade group also reported that 70% of respondents said that 90% or more of their retail tenants had paid their rent in full and on time by June 15, the first time most respondents have reported this rate of on-time collection for retail properties since the survey began in April 2020.

The survey was completed by 239 NAIOP members between June 16 and 21, 2021. Respondents represent a range of professions, including developers, building owners, building managers, brokers, lenders and investors.

The Federal Reserve in its newly released Beige Book made similar observations about supply shortages: “Supply-side disruptions became more widespread, including shortages of materials and labor, delivery delays, and low inventories of many consumer goods,” the Fed said.

The Beige Book that came out July 14 said residential construction softened in several Districts in response to rising costs, while commercial construction was mixed but up slightly on balance.

In Atlanta, residential real estate demand remained strong, while commercial real estate conditions strengthened.

Residential construction remained very strong in San Francisco while residential real estate markets remained strong in Boston as over-the-year results were little changed.

In the New York City metro area, the Fed report found multifamily residential construction has picked up outside Manhattan where it remains moribund.

“Construction sector contacts expect business to improve in the months ahead but expressed concern about the cost and availability of materials and labor,” said the Federal Reserve study.