July 2020 Commercial Real Estate Market Trends and Outlook

The Commercial Real Estate Trends & Outlook report discusses trends in the small commercial market (transactions that are typically less than $2.5 million) based on a survey of members of the National Association of Realtors® engaged in commercial real estate about their transactions in the second quarter of 2020.

Across the multifamily, industrial, office, retail, and hotel sectors, REALTORS® reported a decline in sales and leasing transactions, a decline in sales prices, and an increase in vacancy rates, with retail and hotel suffering the heaviest blow from the coronavirus pandemic.

Industrial and multifamily remain as the strongest legs of the commercial real estate market, in both transactions for structures and land. The office market is also impacted, but it is in the middle-of-the-pack in terms of the impact.

Commercial sales among REALTORS® fell 5% year-over-year in in 2020 Q2. Sales prices were also down by 3%. Leasing volume fell by 4% , and construction was down 5%.

Multifamily Properties

Looking ahead in the next quarter, leasing volume in multifamily properties will likely remain unchanged or decline modestly in 2020 Q3 compared to the volume in the second quarter. Realtors® expect multifamily vacancy rates to hover at around 8% in the next three months. In metro areas where rental vacancy rates are low, rents will remain firm.

U.S. Map: Multifamily vacancy rate in Q1 2020

Office Properties

In the office market, sales, leasing, and net absorption will likely contract mildly in 2020 Q3 given the massive loss in occupancy that has already occurred in the second quarter. Realtors® expect vacancy rates to continue to hover at 15% and will remain elevated until employment gets back to the pre-pandemic level.

Line graph: Office-using Jobs January 2019 to May 2020 and Bar graph: Net New Office-using Jobs by Type in May and June 2020

Industrial Properties

The industrial market is arguably the strongest leg of the commercial real estate market, and Industrial properties will remain in demand given the constant growth in e-commerce and as physical retail locations continue to attract and retain consumers via online shopping and delivery. REALTORS® expect vacancy rates in the warehouse spaces to average 8% in the coming quarter.

Line graph: Warehousing and Storage Employees, SA Thousands, January to June 2020

Retail Properties

Retail, after nearly coming to a complete stop, is starting to show signs of recovering, but some restrictions put in place to minimize human contact (i.e. operating at only 25%) will keep vacancy rates elevated. REALTORS® expect vacancy rates to remain elevated in the third quarter, at 20% among retail strip centers and free-standing stores, with much higher vacancy rates for malls, at 35%.