Economists' Outlook

Housing stats and analysis from NAR's research experts.

Commercial Market Still Weakened by Coronavirus Impact as of June 2020

NAR’s July 2020 Commercial Market Insights report shows that the commercial real estate sector continues to struggle as a result of the coronavirus pandemic. The hotel and retail property markets are taking the heaviest beating while multi-family and industrial are performing relatively well, with the office sector in the middle of the pack. The improving job market is the silver lining in the economic horizon, but the resurgence of coronavirus cases is casting a pall on the job recovery and the continued opening of businesses that underpin the generation of rental income for commercial and multifamily properties.

CMBS Loan Default Rate Rose to 10.3% as of June 2020

The economic lockdown for most of March through May caused a significant toll on revenue and cash flow collections from commercial assets. According to Trepp, the CMBS marked as 30+ days delinquent rose to 10.32% in June 2020, up from just 2.07% in March 2020, as delinquency rates spiked up in lodging (24.3%) and retail (18.07%). However, the delinquency rates for other sectors remain relatively modest: industrial (1.57%), office (2.66%), and multifamily (3.29%).  

The surge in delinquency rates especially for lodging and retail due to the economic lockdown will mean less investor interest in acquiring the underlying properties of these defaulted loans if revenues and cash flows don’t recover to the point of enabling commercial borrowers to be up-to-date on their loan payments.

Line graph: Percent of CMBS Marked as 30+ Days Delinquent by Property Type March to June 2020

Commercial sales are down 79% in May from one year ago

Interest to acquire commercial properties has dried up in all sectors. Commercial real estate sales of properties or portfolios of $2.5 million or more have collapsed, down 79% in May from one year ago and 20% on a year-to-date basis. All sectors showed minimal sales transactions in May 2020 from one year ago, with almost no transactions for hotels. 

Among transactions that closed, prices were up broadly up 5% from one year ago. The sales price of apartment transactions that closed was up 9%, the strongest growth among the sectors, followed by industrial, at 6%, then office, at 2%. The only sector where sales transaction prices have fallen is the hotel sector, down 6%.

Bar chart/line graph: Sales and Acquisitions of 2.5M+ Properties January 2019 to May 2020

May ‘20

Year to Date


Vol ($b)


Vol ($b)


Cap Rate





































Snr Hsg & Care






Dev Site











*All-Property Index; excludes Hotel, Snr Hsg & Care

Source: Real Capital Analytics

Industrial and multifamily properties have the lowest perceived riskiness by investors

The perceived risk of holding commercial properties has increased since January by about one percentage point, as measured by the difference between the rate of return (cap rate) and the 10-year Treasury note.1

The hotel sector acquisitions had the highest risk premium of 8 percentage points (6.8% in January) and 5.9% for retail (4.8% in January). The office sector is in the middle of the pack, with the spread at 5.9% as of May (4.8% in January). As of May, the lowest risk premium was among multifamily properties (4.7%) and industrial (5.3%), but those spreads are higher compared to their January levels (3.7% and 4.8% respectively). With improving job numbers, the risk premium for commercial property acquisitions (spread between cap rates and the 10-year Treasuries) narrowed somewhat in May in the wake of positive employment data (+ 2.7 million payroll jobs in May) and sustained decline in initial unemployment claims (from 6 million in the week of April 4 to 1.9 million in the week of May 30). 

Line graph: Risk Premium for Commercial Property Investment Up Since January But Slightly Narrowed in May 2020

Job Recovery: a Plus Factor for Commercial Real Estate Recovery

The commercial real estate sector has been hit hard by the coronavirus pandemic, but the improving job market is the silver lining in the economic horizon, although the resurgence of coronavirus cases is casting a pall on the job recovery and the continued opening of businesses that underpin the generation of rental income for commercial and multifamily properties.

As of June, there were nearly 9 million more employed workers compared to April when the number of employed workers plummeted, based on the BLS Household Survey that also counts the self-employed. This is higher than the 7.5 million net new payroll jobs from the Establishment Survey that does not count self-employment and also counts jobs, not workers (so a person holding two part-time jobs will count as two jobs).

Line graph: 8.8 Million More Employed in June vs April 2020

There were job gains in many industrial sectors, with nearly 75% of the 7.5 million net new payroll jobs created in May and June were in leisure and hospitality (+3.5 M), retail trade (1.1 M), and education and health services (967 K). While most private-sector jobs recovered, 500,000 government-paid jobs were lost in May and June.

Bar chart: 7.5M Payroll Jobs Created in May and June 2020

1 A higher risk spread means a higher return on investment (cap rate) relative to the risk-free T-note to compensate for the riskiness of the returns on holding the asset, which means lower commercial prices to incentivize investors to hold the commercial asset than investing in a risk-free Treasury note.  


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