How has Covid 19 Affected Commercial Real Estate Demand in the U.S?

Commercial Real Estate has been on a bull run since the recession of 2009 and was chugging along full steam into early 2020. Once the shutdown of California started in March of 2020, both commercial banks and investors reduced activities through 2020.

In Fact, commercial real estate transactions across the U.S. had roughly 20% decline in transactions in 2020. The properties most impacted by the pandemic have been office, retail, and Hospitality. Many large employers reduced office space, reduced staff, and even moved entire headquarters out of state as many workers have been working from home over the last year and a half anyway. With most stores being closed, shopping has been pushed online more than ever which in turn has hurt retail properties who have been missing the foot traffic that drives their store sales. hospitality has taken the biggest hit as travel has been reduced and is barely starting to pick up again.

With uncertainty regarding opening and closing of businesses some other property types with “Essential Real Estate” tenants have had an increase in demand showing how resilient they are in any market. 

Properties that fall into the Essential Real Estate Category by type or tenant are showing their resiliency to the market and communal support in the communities they serve. Essential Real estate could be categorized by the tenant or product type such as housing, medical office, industrial distribution centers and specific retailers like drugstores and grocery stores.

The biggest factor COVID has effected directly has been rent collection. With collections down across most property types, the uncertainty has led to more due diligence in purchasing and banks requiring more reserves for purchases.

Hospitality vacancy rates have increased as the tourism industry is recovering, while retail properties have been affected by business closures. Commercial owners across the board have varied vacancies and rent collections. The National Multifamily Housing Council reported a rent collection rate of 72% through September which is about 10% from the historical collections rate of +/-80%.

It remains to be seen how rent collections will be moving forward as the eviction moratorium ends and tenant relief funds get distributed.

National Multifamily Housing Council https://www.nmhc.org/research-insight/nmhc-rent-payment-tracker/