Land, Industrial, and Residential Sales Buck Pandemic's Impact

Sales transactions were down 3% on average, year over year, in the third quarter of 2020, according to NAR’s quarterly market survey of commercial members. About 650 commercial members responded to the survey.

Sales Volume by Property Type

Predictably, sales of land, industrial, and residential properties have emerged the healthiest from the pandemic’s blow to the commercial real estate business. In fact, sales transactions involving land and industrial warehouses were essentially unchanged. The heaviest decline was in acquisitions of retail malls (down 7%), retail strip centers (down 5%), Class A office properties (down 5%), and freestanding retail (down 4%). Sales deals for industrial flex properties and apartments declined by just 1%.

Surge in E-Commerce and Mail Order

Accelerated online shopping and mail-order sales buoyed the demand for industrial properties and accounted for 15% of retail sales as of August. This was up from 13% at the beginning of the year, equaling about $100 billion more on an annual basis.

Lease Transactions

Looking at leasing transactions, REALTORS® reported a decline for all property types except industrial, which experienced slightly higher leasing volume. Leasing volume in retail malls was down 9%. Leasing activity, including renewals and new leases, for office space among respondents declined 2% year over year. REALTORS® reported that, on average, the leased space of Class A office buildings declined from nearly 10,000 square feet in the second quarter of 2020 to just about 8,000 square feet in the third quarter. In Class B/C office buildings, the average leased space declined from about 8,000 square feet in the second quarter to 4,000 square feet in the third quarter.

Net Absorption

Separately, Cushman & Wakefield reported a larger loss of occupancy (negative net absorption) in the third quarter compared to the second quarter among occupiers of office and retail establishments. Office occupancy fell by 41 million square feet, and retail occupancy fell by 13.6 million. However, occupancy in industrial establishments rose by 62 million square feet.

Demand for Recreational Land Runs Strong

With the pandemic constraining leisure activities such as dining out and going to the theater and movies, outdoor or nature-based recreational activities appear to have increased, as evidenced by the demand for recreational land. (A land transaction is any transaction in which the value of the land, including improvements that are agricultural in nature, accounts for at least 51% of the total sale of the transaction.) Since the pandemic, the demand for homes outside of cities has grown, leading to an increase in sales of residential land. On average, respondents reported that sales of land for residential use rose 6% year over year and sales of land for recreational use rose 5%.