Commercial Real Estate: 2020 Year in Review

Commercial real estate (CRE) has had a very volatile year. At the start of 2020, commercial real estate was well poised for continued growth and expansion with high optimism among all sectors, but the onset of the global pandemic shook the CRE market, turning many sectors upside down and creating uncertainty and concern for short- and long-term performance for many sectors. As 2020 comes to a close, let’s see how commercial real estate has fared and things to look for as we move into a new year.

The impact of coronavirus on commercial real estate

Initial shutdowns relating to the global pandemic caused major disruptions to the commercial real estate market in Q2 2020. Supply-chain interruptions, government mandates, and social- distancing protocols created a shift in demand across all sectors. As the economy started to reopen in early to mid summer, several sectors saw improvements returning to more normalized activity while others continue to struggle.

To date, commercial real estate activity is down 48% year over year globally. Retail, hotel and lodging, and office are the three commercial real estate sectors that were hit the hardest, with experts estimating a 12-month or more recovery period. Industrial and logistics is by far the leader among CRE currently with multifamily properties, particularly those in suburban areas trailing behind.

Despite certain sectors having a tough time, there are relatively few distressed asset sales in the commercial space, with most property owners expecting prices that match or beat values in Q1 of 2020. Flattened rental rates and higher vacancies are expected across the board, with cap rates remaining flat in all sectors but hotel and lodging (which was excluded from the survey) and retail.

Industrial and logistics

Industrial real estate was already the leader among commercial real estate in demand, net absorption rates, occupancy, and returns. While there were minor short-term interruptions from the initial onset of the pandemic, it was short lived. With more consumers shopping online, demand has increased for retail distribution and storage space as well as logistics warehouses, with these three industries making up 71% of all leasing activity. E-commerce leasing activity accounts for 71.3 million rentable square feet, the largest of any industrial and logistic subsector in 2020 so far. Triple-net-lease asking rates have increased 6.4% year over year, while vacancy rates are down to 4.7%. While supply is steadily outpacing leasing rates, availability rate is still well within historical average.


Multifamily housing is the second least affected sector by the global pandemic. Initial disruptions and lack of desire to move during a global pandemic increased tenant retention, but as the pandemic continues, some tenants are moving to suburban areas in which rents are lower. High density, expensive markets are seeing declines in rental rates and higher vacancy rates because of this. Rent collections suffered slightly, ranging between 1% – 2% less than 2019 rent collection rates year over year. Vacancy rates have increased slightly at 4.7% as of Q2 2020, with class A apartments having the highest change in vacancy rate and greatest reduction in rental rates. Class C apartments have maintained the most stable rents, with average rent growth as a whole down 0.6%.


Retail was an already struggling sector prior to COVID-19. March and April looked grim for this sector, but early summer reopenings provided a small rebound to certain retailers, particularly clothing and department stores as schools prepared to reopen in certain regions in late summer. Multi-tenant vacancies for retail landlords increased to 6.4% in Q3. Big-box retailers, especially those that fall under the essential retail category (grocery, building materials, pet supplies), as well as non-store retailers have fared well and have reported strong sales. Retail sales for Q3 have now surpassed pre-COVID retail levels and recovery looks strong for this sector. Holiday sales could provide a positive surge for retailers, although the majority of sales are expected to happen online.

Hotel and lodging

Hotels are undeniably the most disproportionately affected sector of CRE in 2020, with a 70% decrease drop in demand in April and 60.1% decrease in occupancy in April before rebounding some in summer. August occupancy is expected to be around 39.8%, although exact figures haven’t been confirmed yet. EBITDA from CBRE Hotels research is down 103%. Hotel and lodging accounts for the highest delinquencies among all commercial mortgage-backed securities (CMBS) delinquencies.


2020 has been an interesting year for the office sector. Most companies have employees working from home, with only essential personnel working in the office, which has pushed leasing activity down 39% year over year in Q3. However, vacancy rates remain rather stable, rising only 1% to an average 14% for the sector. Net absorption for office space is down 33.5 million square feet. Downtown office vacancies are up 2.4% over last year, and suburban vacancy rates are up 1.7% since last year. Large cities with higher asking rents are seeing the largest increase in vacancy rates, with 89% of the negative net absorption rates taking place in top-tier markets in the northeast, California, and Texas.

2021 and beyond

It’s clear 2020 has given the commercial sector a run for its money. Despite a few sectors, sentiment is high for most subsectors of commercial real estate. Experts are hoping for a strong recovery for those hit the hardest in 2021 and beyond, but it’s largely dependent on future government regulations and social distancing orders, as well as potential vaccines for COVID-19. Expect to see continued growth in industrial and logistics and positive rebounds for multifamily, particularly suburban multifamily, and retail. Hotel and office space will likely maintain their current trajectory and trends until restrictions and concerns over the pandemic are reduced.

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