With the current unemployment rate at 23% and GDP down 38% due to the Covid pandemic and associated lockdowns, commercial real estate is taking a hit. The largest dips in demand are being felt in two sectors: office and retail spaces.
The Green Street Commercial Property Price Index found that office occupancy fell by 41 million square feet and retail occupancy fell by 13.6 million square feet in the first quarter of 2020. Hotel and hospitality spaces are also feeling the crunch.
In fact, commercial property prices and sales have been down across all commercial property types with the exception of industrial space. Occupancy in industrial establishments rose by 62 million square feet, so we are seeing an understandable shift in commercial property use.
Several years ago, repurposing commercial space became popular as retail shopping centers experienced vacancies due to increased online shopping at retailers like Amazon. The pandemic lockdowns are understandably accelerating that trend, with vacated malls near major metropolitan areas being repurposed as warehouses and logistical distribution centers.
The National Association of Realtor’s Commercial Real Estate Trends and Outlook report for October 2020 showed some staggering trends:
- 54% of survey respondents reported an increase in missed/late/partial rent payments for office, retail, and industrial space.
- 83% reported an increase in staggering office schedules.
- 43% reported an increase in leasing transactions in the suburbs vs. cities.
- 52% reported an increase in the repurposing of vacant malls for industrial use, warehouse use, healthcare/hospital, or as a church.