April 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 first quarter of 2020 and the latest publicly available data. Current conditions. This latest report shows the very early impact of the coronavirus pandemic on commercial real estate. On average, respondents reported a 1% decline in their commercial sales volume during the first quarter of 2020 compared to transactions in the same period last year. On average, respondents reported a 2% decline in the dollar volume of new leases compared to the level one year ago.

Line graph: Year-Over-Year Percent Change in Quarterly Sales Volume, 2012 to Q1 2020

Across the multifamily, industrial, office, retail, and hotel sectors, a lower fraction of respondents reported higher sales transactions and new lease volume on an annual basis in the first quarter of 2020 compared to the fraction of respondents who reported an increase in sales and leasing activity in the prior quarter.

Respondents reported that commercial prices rose at a slower pace of 1% from one year ago. Other price indicators show prices are softening. The Green Street Property Price Index which is compiled from high quality properties in REITs portfolios fell slightly by less than half a percent in 2020 Q1 from the prior quarter.

Respondents reported higher vacancy rates for office, 10.5%; retail, 10.1%; and multifamily, 5%. Vacancy rates in industrial properties were flat at 5%.

A lower fraction of respondents reported an improvement in access to financing: 57% reported an improvement in debt financing conditions compared to one year ago, and 53% reported an improvement in equity financing conditions.

Bar graph: Year-Over-Year Change in REALTORS® Commercial Leasing Volume, 2009 to Q1 2020

Economic Outlook

We expect the second quarter GDP growth to be the steepest decline in the U.S. history – likely in excess of 15% contraction on an annualized basis. What will be critical is the recovery in the second half of the year. Is it going to be sharp and quick rebound of a V- shaped or a sluggish recovery of staying low for a period before a recovery of a U-shaped? That will depend on the economy’s response to the stimulus measures and the path of virus containment. The best guess is for the second half GDP growth to be insufficient to compensate for the loss in the second quarter. Therefore, we expect GDP to have contracted around 3% to 5% for the year as a whole and net job losses totaling around 3 to 5 million.

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