We highlighted transitional changes within Commercial Real Estate in our blog from last month, but now the picture is a bit more defined after Q2 reports. The pandemic strongly impacted our economy in many ways, that are still to be discovered. But at least we have some numbers to report now. Returns on property tend to downtown during a recession that is business activity based. The pandemic health crisis definitely led quickly to an economic crisis. We now have time to evaluate this quarter and sit back to see how it progresses especially in the CRE market.
The year 2020 began with a healthy business outlook, with capital readily available to invest, alongside moderate property and price growth. That was encouraging and many businesses sought the means to expand operations. The pandemic moved in, seemingly during the night, like a vicious storm, moved quickly through all sectors and immediately impacted activity. Many questions and uncertainties remain about the comprehensive effect all this will have on economic growth and asset prices. Now that numbers from Q2 are slowly surfacing, early reports show the industrial sector holding steady despite the COVID-19 pandemic.
Commercial Real Estate Market
On review of the latest findings, we discovered a decline in sales and leasing in multifamily, industrial, office, retail, and hotel sectors. This resulted with an increase in vacancy rates, with retail and hotel suffering the heaviest numbers. The office market remains stuck in the middle in terms of impact due to the fact many changes were being brokered just prior to this pandemic. Staying steady in the commercial real estate market, are the Industrial and multifamily units. They remain stable in both transactions for structures and land. This information, Commercial Trends and Outlook, was reported by The National Association for Realtors.
Here is a quick summary of the latest Q2 findings I thought you’d be interested in seeing:
• While industrial sales were down nationally in the second quarter of 2020, the decline was the smallest of any major property type, according to a recent report by Real Capital Analytics.
• As companies jump online—maybe for the long haul, demand for industrial warehouse space is strong.
• Industrial vacancy remains below 6.0 percent, and rents remained unchanged from the start of 2020 through Q2 at $6.30 per square foot.
• There’s no doubt the pandemic has negatively impacted the commercial retail sector—U.S. demand for retail space was down by 98 percent in Q2.
We have experienced a year of unprecedented upheaval in every segment of society, on a universal scale. “While sales activity in the U.S. industrial sector dropped during the quarter, buffeted by lockdown restrictions and economic uncertainties, the sector’s decline was the smallest of any major property type. And, of the $11.1 billion in industrial transaction volume, around one-third came from sales of distribution warehouses.”, say REAL Capital Analytics.
This year will ride out into infamy on a wild untamed stallion, showing that though we are prepared, we are never quite prepared for unknown forces that cancel our projections, and rip the forecast notes to shreds. We have weathered the storm pretty well and now have to focus on recovery and rebuilding.