{"id":27343,"date":"2020-04-10T14:01:29","date_gmt":"2020-04-10T12:01:29","guid":{"rendered":"https:\/\/www.commercialcafe.com\/blog\/?p=27343"},"modified":"2025-03-25T16:09:37","modified_gmt":"2025-03-25T13:09:37","slug":"covid-19-impact-on-commercial-real-estate","status":"publish","type":"post","link":"https:\/\/www.commercialcafe.com\/blog\/covid-19-impact-on-commercial-real-estate\/","title":{"rendered":"COVID-19\u2019s\u00a0Impact on Commercial Real Estate"},"content":{"rendered":"

The economy was on a roll in February. Even as the severity of the pandemic was taking shape in China, the U.S.\u00a0remained on the upswing.\u00a0But, since then,\u00a0the economy, markets, jobs\u00a0and businesses\u00a0have been dwindling.\u00a0Last week,\u00a0Yardi\u00a0Matrix<\/a> hosted a webinar on how\u00a0COVID-19 is\u00a0affecting\u00a0commercial real estate.\u00a0Below are highlights from the webinar.<\/p>\n

The Economy: Expectations & Responses<\/h2>\n

Social distancing measures have shuttered 20% to 25% of the economy. Q2 GDP estimates are ranging anywhere from -10% to -44%, with most of the pain being felt in travel- and experience-related industries, such as hospitality, airlines, restaurants, retail and events. The collapse of oil is also weighing heavily on the energy sector with at least one company already having filed for bankruptcy.<\/p>\n

However, the U.S. monetary and fiscal response to the pandemic has been broad\u00a0and rapid.\u00a0The Federal Reserve has adopted a \u201cwhatever it\u00a0takes\u201d approach to this crisis and\u00a0is\u00a0pulling every lever\u00a0it\u00a0can to support the financial markets.<\/p>\n

Furthermore, the $2 trillion CARES Act\u00a0is adding immense\u00a0liquidity into the economy by offering one-time payments to individuals\u00a0and boosting\u00a0unemployment benefits,\u00a0as well as\u00a0providing\u00a0$349 billion in small business loans,\u00a0$117 billion to hospitals and veterans\u2019 health care, and $29 billion to airlines and cargo carriers.<\/p>\n

Notably, the CARES Act also has\u00a0specific provisions\u00a0that will help commercial\u00a0real estate, as well.\u00a0In particular, small\u00a0businesses can borrow up to $10 million per business, and if the money is used to pay rent, employee\u00a0salaries and other related expenses for the next two months, it can be converted into a grant. It\u00a0also\u00a0allows for a business net operating loss carryback of five years for tax years 2018, 2019 and 2020,\u00a0and\u00a0provides a $5,000\u00a0refundable tax credit for retaining employees\u00a0\u2014\u00a0which isn\u2019t\u00a0limited to\u00a0just\u00a0small businesses.\u00a0Moreover, payroll tax payments for employers\u00a0are delayed for\u00a0the remainder of the\u00a0year and\u00a0Building Owners and Managers Association (BOMA)\u00a0members\u00a0\u2014\u00a0as well as the restaurant and retail sectors\u00a0\u2014\u00a0can\u00a0fully expense tenant improvements\u00a0as part of\u00a0a\u00a0Qualified Improvement Property\u00a0(QIP).<\/p>\n

And just yesterday,\u00a0April 9th,\u00a0the Federal Reserved announced an additional $2.3 trillion in loans to support the municipal\u00a0debt market and to small- to medium-sized businesses through its Main Street\u00a0Lending\u00a0Facility.<\/p>\n

Effects on Commercial Real Estate by Sector<\/h2>\n

In the office market, larger companies that are well capitalized should have fewer problems with expenses, but small businesses with shorter runways won’t fair as well. Offices also might look a little different after the recovery with smaller spaces and possibly more work-from-home options for their employees.<\/p>\n

Coworking will likely take a large hit as many short-term tenants have vacated or ended their leases due to shelter-in-place orders. This will certainly have a near-immediate impact on cash flow and vacancies.<\/p>\n

Yardi Matrix predicts that the industrial sector will likely perform the best through the crisis. E-commerce demand has only increased as people stay inside but still need consumer staples and groceries. Cold storage has done well, and even online discretionary spending is up. As a side effect, the value of logistics and distribution also went up, seemingly overnight. Even so, 44% of the industrial market is comprised of multi-tenant properties, which may be hit harder due to the nature of its small business tenant mix.<\/p>\n

Retail is taking the hardest hit. Social distancing has crushed the experiential retail market across the country. Theaters, events, resorts and restaurants are all feeling the most pain right now. However, some retail \u2014 particularly grocery-anchored \u2014 will perform better than most.<\/p>\n

Industry Reactions &\u00a0Uncertainty<\/h2>\n

So far, institutional investors have adopted a \u201cwait-and-see” approach, according to\u00a0Yardi\u00a0Matrix\u00a0Director of Research, Jack Kern. They\u2019ve frozen all acquisitions\u00a0and portfolio\u00a0decisions and are focusing on improving cash flow by cutting expenses wherever possible.\u00a0Meanwhile,\u00a0individual owners\u00a0with larger risk profiles\u00a0may look to take advantage of opportunities that arise in the distressed market.\u00a0But,\u00a0overall, it\u2019s too early to tell what\u2019s going to happen,\u00a0so most investors are sitting tight.<\/p>\n

Yardi Matrix Vice President, Jeff Adler, said rent payments over the next two months are going to tell us a lot. Some businesses, such as those in professional services, are able to do business without much hardship. Similarly, small business loans from the CARES Act and subsequent stimuli may help many others. In the investment environment, the 10-year has collapsed and spreads are blown out, so cap rates aren\u2019t likely to fluctuate much. As real estate is a lagging indicator, we\u2019re likely to see improvements elsewhere before we see them in the commercial real estate markets.<\/p>\n

Listen to the entire commercial real estate webinar<\/span><\/a>, as well as webinars covering\u00a0multifamily and\u00a0self\u00a0storage.<\/p>\n","protected":false},"excerpt":{"rendered":"

The economy was on a roll in February. Even as the severity of the pandemic was taking shape in China, the U.S.\u00a0remained on the upswing.\u00a0But, since then,\u00a0the economy, markets, jobs\u00a0and businesses\u00a0have been dwindling.\u00a0Last week,\u00a0Yardi\u00a0Matrix hosted a webinar on how\u00a0COVID-19 is\u00a0affecting\u00a0commercial real estate.\u00a0Below are highlights from the webinar. The Economy: Expectations & Responses Social distancing measures…<\/p>\n","protected":false},"author":63,"featured_media":27347,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[37,42,2256,41,93,39,2547,40],"tags":[],"class_list":["post-27343","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-commercial-real-estate-news","category-market-reports","category-coworking","category-industrial","category-mixed-use","category-office","category-resources","category-retail","wpautop"],"acf":[],"yoast_head":"\nCOVID-19\u2019s\u00a0Impact on Commercial Real Estate - CommercialCafe<\/title>\n<meta name=\"description\" content=\"Highlights from the webinar hosted by Yardi\u00a0Matrix on how\u00a0COVID-19 is\u00a0affecting\u00a0commercial real estate and how CRE professionals are navigating it.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialcafe.com\/blog\/covid-19-impact-on-commercial-real-estate\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"COVID-19\u2019s\u00a0Impact on Commercial Real Estate\" \/>\n<meta property=\"og:description\" content=\"Highlights from the webinar hosted by Yardi\u00a0Matrix on how\u00a0COVID-19 is\u00a0affecting\u00a0commercial real estate and how CRE professionals are navigating it.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialcafe.com\/blog\/covid-19-impact-on-commercial-real-estate\/\" \/>\n<meta property=\"og:site_name\" content=\"CommercialCafe\" \/>\n<meta property=\"article:published_time\" content=\"2020-04-10T12:01:29+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2025-03-25T13:09:37+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialcafe.com\/blog\/wp-content\/uploads\/sites\/10\/COVID_Impact_Commercial_Real_Estate_1120723769.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1280\" \/>\n\t<meta property=\"og:image:height\" content=\"500\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Patrick McGregor\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Patrick McGregor\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.commercialcafe.com\/blog\/covid-19-impact-on-commercial-real-estate\/\",\"url\":\"https:\/\/www.commercialcafe.com\/blog\/covid-19-impact-on-commercial-real-estate\/\",\"name\":\"COVID-19\u2019s\u00a0Impact on Commercial Real Estate - 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