Fidelity National Title Idaho Blog

There’s a Change In the Atmosphere, But We Don’t Yet Know Which Way the Wind Is Blowing

Posted by Phil Archer on Jul 6, 2020 10:00:00 AM

Talk to people in the Treasure Valley commercial space and you’ll sense a giant elephant in the room. The fact is, we just don’t have a concrete idea of where the market is going to head next.

The Paycheck Protection Program launched by the federal government earlier this spring has delayed the ramifications of the COVID-19 pandemic on commercial properties. Unlike places like New York, where some building owners collected payments from only 20 to 45 percent of their tenants this spring, we’re in a bit of a bubble. Our economy has been so strong that we’re not seeing the bottom fall out of the market. Instead, we’re in a holding pattern — one that has been extended by PPP funds. 

Rental delinquencies held steady overall in April and May, with delinquencies increasing in office spaces, declining in industrial, and remaining about the same in retail. We can expect rental delinquencies to increase as those PPP funds run out. 

We’ve seen a lot of commercial players put a hold on new contracts and construction rather than canceling them and taking a loss. Some commercial economists are worried that no one will pull the trigger, so to speak, and that hedging bets will delay a bounceback. It’s a tough situation for everyone involved — if you’re a tenant, do you want to sign a two- to three-year commercial lease in this climate? If you’re a landlord, do you want to create more office space or limit your exposure? 

On the other hand, new construction building permits in Boise slid by 50 percent in June compared to 2019, but the value of the permits went down only 30 percent in dollar volume. Clearly, the value increase shows just how strong the economy is in the Treasure Valley.  

I’ve been comparing this experience to knowing a tornado is coming. You can see the weather report, you sense a change in the atmosphere, but you don’t know if you’ll have to reattach a few shingles to your roof or rebuild from the ground up until the storm has passed. 

We can’t be 100 percent certain what’s coming, but there are a few indicators we’re watching. 

Sales pipeline predictor. We’ll be looking for a steady increase or a spike in opportunities. 

Presidential election. No matter who wins, the presidential election is bound to affect the economy. What we can’t know is the direction it will turn. 

Rental analysis. Are we seeing an increase or a decrease in delinquencies? The answer will be a sign of things to come. 

Sales and leasing activity. These numbers aren’t a prediction because they’re analysis after the fact, but they’re still part of the overall equation. 

You might wonder why unemployment numbers aren’t part of our analysis. The answer is that they’re so easy to skew that we feel they’re not entirely reliable. 

In 2008, the bottom fell out of the market — but at least we knew where the bottom was. This time is different, but we’re still here for you, just as we were 12 years ago. We work with multiple experts across many facets of the industry and we can help you put that collective knowledge to work. If you want to brainstorm with us, get educated market predictions, and begin to plan for whatever comes next, we can help. We’re ready to ride out this storm with you. 

Tags: Phil Archer, Commercial, Forecast

Serving the Real Estate Community of Idaho For Over 60 Years. We are the most trusted name in title insurance Since 1848 specializing in personal, exceptional service for all of our valued customers. Fidelity National Title Company provides premier title insurance, escrow & closing services. Fidelity National Title is one of the nation's premier real estate service companies, providing title insurance and other real estate-related products and services and is part of Fidelity National Financial, a Fortune 500 company.

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