2020 Commercial Real Estate Industry Wrap Up

As 2020 comes to a close we are all preparing for a big exhale, with the hopes that 2021 will bring about positive change. It’s no doubt that the commercial real estate industry suffered many casualties, made seemingly worse by the fact that, pre-pandemic, commercial real estate was poised for a prosperous 2020 with high optimism across all sectors. As we all know, with the onset of the global pandemic, the commercial real estate industry turned upside down and the rest of the year would be one of complete uncertainty. The Pacific Northwest was triply impacted by not only the pandemic, but also racial tensions and an unprecedented number of forest fires.

Across the world, initial shutdowns due to COVID caused major disruptions: supply chain disruptions, government mandates and social distancing guidelines resulted in a shift in demand across all sectors. Once the economy reopened, some sectors saw improvements and even returned to more “normalized” activity. However, many others saw even more struggle. Overall, global CRE activity was down 48% year over year.

Retail, hospitality and office were the hardest hit sectors, and face at least a 12 month recovery. Despite that, there were still relatively few distressed asset sales, and property owners estimate that prices will recover to match or beat Q1 2020 values.

The industrial sector did the best, with only minor short term disruptions early on in the pandemic. However, with the shift to online shopping, the demand for retail storage space, distribution centers and logistics warehouses skyrocketed. In fact, the industrial sector accounts for 71% of all leasing activity.

Tenant retention initially increased in the multi-family sector, as there was a lack of desire to move during the pandemic. However, with sudden unemployment and financial struggles, many tenants are moving to lower cost suburban areas. This is resulting in higher vacancy rates in high density, expensive areas.

Retail was already struggling prior to the pandemic, and one could say the pandemic “kicked retail when it was already down.” Early summer openings eased the pain slightly, as consumers shopped for things like school supplies and clothes for the fall school openings (which, we all know, ended up being its own bit of chaos). It’s no secret that big box and grocery stores, those dubbed as essential businesses, fared well. However, a bleak Black Friday was a huge disappointment for brick and mortar stores. Sadly, many of those so negatively impacted were small, locally owned businesses as foot traffic virtually disintegrated.

Hospitality and travel were poised for a great year, but again, this is a sector that was hit incredibly hard and has possibly fared the worst of all sectors. With the shutdown, demand dropped by 70%, with only a small rebound during the summer. 

Office activity was also down significantly (39%), with more companies shifting to a remote workplace. However, many vacancy rates were only slightly affected (1% increase overall), with downtown office rate vacancies up slightly more at 2.4%.

It is safe to say that 2020 has been a somber year for all of us, not just those in the commercial real estate industry. Effects have been felt on all levels, from the economy to mental health. However, after every dark night is a new dawn, and 2021 offers a glimmer of hope on the horizon. Stay tuned for our insights for what to expect for commercial real estate in the new year.

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