How Commercial Real Estate Is Affected By The Coronavirus Pandemic

Not all commercial real estate is being negatively affected by the coronavirus. Some commercial real estate is seeing tremendous demand. This post provides a great overview of how commercial real estate is affected by the coronavirus pandemic.

The expert insights come from CrowdStreet. CrowdStreet is one of the leading real estate marketplaces today. It focuses on real estate opportunities in 18-hour cities where valuations are cheaper, rental yields are higher, and growth rates may be faster due to positive demographic shifts.

We've discussed how single family home prices are holding up during the pandemic. The reasons why include: low inventory and mortgage rates are at record-lows.

It's worth looking for bargains from the same sellers who sold stock when the Dow was below 19,000. These motivated sellers are out there. You just have to aggressively look to find them.

Now I want to turn our attention towards commercial real estate. I want to understand which types of commercial real estate are being most negatively impacted. It's also good to know which types of commercial real estate are holding up. There is investment opportunity, especially as the economy gradually opens up.

Commercial Real Estate And The Coronavirus

Let's analyze the various sectors from best performing to worst performing. Here's how commercial real estate is being affected by the pandemic.

Industrial Commercial Real Estate

The long-term trend towards online shopping is strong. However, practically overnight we were all forced to buy everything online. Demand for large-scale distribution centers has skyrocketed in response. 

At the same time, many distributors and retailers have found out the hard way. They do not have adequate last-mile distribution (the “out for delivery” part of your package tracking). This is often the most expensive and complicated part of the shipping process.

PWC shows 62% of consumers expect orders to be delivered within two days of purchasing. People want their goods and they want them now!

Odds are there will be heightened demand for even more last-mile distribution spaces, especially in growing metro areas, as companies strive to ensure they are well-positioned for the future.


Industrial Data Centers

Another type of industrial–data centers–are also lagging behind demand. Video conferencing company, Zoom went from 10 million daily meetings in December to over 200 million daily meetings in March, for instance.

The past month has exposed which cloud companies did not have adequate server space to handle an entirely remote workforce. Although that demand may level out when offices reopen. Cloud-based businesses will continue to put a heavy stress on existing data centers.

Amongst REITs, data centers (Digital Realty Trust, Equinix Inc., CyrusOne, CoreSite Realty and QTS Realty Trust) were the only industry segment to show a positive gain for the first quarter of 2020, growing by 8.8%.

CrowdStreet’s Investments team recently approved the company’s first data center deal. The company is looking to launch the project on the Marketplace soon. In the meantime, you can have a look at what's currently available.

CrowdStreet Investment

CrowdStreet’s Chief Investment Officer, Ian Formigle, says, “This particular project represents a sale-leaseback with a company in the cloud computing space. The tenant’s business has shown signs of strengthening during COVID times, with an uptick in demand of services and increased revenues.

Multifamily Commercial Real Estate

Multifamily is a “recession-proof” asset class. The reason why is that everyone wants/needs a roof over their head.

Multifamily properties are doing well. People are working from home. Strong rent collection continues.

In a recent live stream with CrowdStreet, Melissa Reagen of Nuveen Real Estate pointed out that 89% of apartment rents were collected in April, with higher quality apartments collecting at a higher rate. You can sign up to watch the insightful video.

Andrew Akers, a Senior Advisor with The UIP Companies, Inc (UIP) suspects that investor interest in the firm’s recent CrowdStreet offering–a Class A, stabilized multifamily asset in a major metro–represented investors’ “flight to quality.”

Akers believes that the ongoing market uncertainty actually helped solidify the thinking of many real estate investors–buying a quality asset in a quality market, even in a time of stress, can be a good recipe for wealth preservation in addition to income and long-term appreciation.

Renter Support

However, workforce housing–often occupied by “blue-collar” households where jobs are tied to retail, the service industry, and construction–may find it harder to collect rent on time or in full.

To keep people in their homes, many municipalities are enacting strong renter protections to prevent evictions. Some landlords feel the squeeze. But most are doing fine so far.

The ability of a landlord to collect rents is heavily tied to what their tenants do for work, so now, more than ever, it is important to understand the employment and economic drivers associated with the renter population of a property. 

Related: Rental Properties: The Invest Case For Buying More

Medical Office Commercial Real Estate

The difference between critical medical tenants and non-critical tenants is very apparent at the moment. Elective and non-essential procedures are being canceled in order to protect both patients and healthcare workers, but some procedures–including dialysis and chemotherapy– can’t be postponed.

Regardless of whether a medical tenant provides critical services or not, they often have a loyal patient base who will be looking to schedule services. These services include everything from a teeth cleaning to ACL reconstruction surgery. Pent up demand is building in 2H2021.

And thanks to the high cost of moving and heavy/expensive build-outs often required to bring a new medical office inline with the appropriate codes, it’s likely that most medical tenants will not break their leases and will opt to renew when the time comes.

U.S. commercial property performance April 2020

Office Commercial Real Estate

According to real estate data company CoreNet Global, the average amount of space per employee dropped from 225 square feet in 2010 to 176 square feet in 2012. And it’s not like we’ve given employees that space back since then.

With the majority of traditional office jobs now working remotely thanks to COVID-19, many office tenants are realizing some jobs can stay remote even when we’re allowed back in the office. This could further decrease the overall need for office space. 

CrowdStreet’s Chief Investment Officer Ian Formigle believes that COVID-19 is going to fundamentally change the way we think about and use office space. “Now that the decision makers have been forced to work from home, they might have very different opinions about what their office needs to look like.

Even the CEO at Morgan Stanley, James Gorman said the firm is likely to keep some percentage of its workforce at home.

Related: Evaluate Real Estate Investments, Use The Who, What, When Framework

Work From Home Efficiencies

“With 90% of our employees at home, we've had almost no issues from our plant,” Gorman said. “Can I see a future where part of every week, certainly part of every month, for a lot our employees will be at home? Absolutely.”

On the other hand, there might also be a renewed importance placed on personal space and adequate distancing between employees. This could prove to increase office demand.

It’s important to remember that “open for business” will likely not mean everyone comes back to the office on the same day. Employees will probably be “phased in” over the coming months to help ensure everyone’s health and safety.

It’s too soon to say for sure exactly what the office of January 2021 will look like. But odds are it’s not the office of January 2020.

The below chart provides an idea of how Industrial, Office, and Retail commercial real estate is performing post the coronavirus pandemic so far.

Commercial real estate performance in Europe

Hospitality Commercial Real Estate

The hospitality industry is being hit the hardest by COVID-19.

Back in July 2020, about 25% of Marriott's 7,300 hotels around the world are shut down. Across the U.S., about 80% of all hotel rooms are empty.

As the immediate impact of COVID-19 became clearer, CrowdStreet’s Investment team purged almost all of the hospitality deals from the Marketplace’s pipeline. 

As CrowdStreet’s Director of Investments, Anna-Marie Allander Lieb, put it, “We saw the hospitality sector quickly decline with occupancy falling and bottoming out at approximately 20% nationwide. Historically, rebounds in the hospitality sector have taken twice the time it took to decline.

However, given the vastly different circumstances this time around, we’ll be looking for signs that the country is emerging from COVID-19.

We’ll also pay attention to how things unfold in China and areas of Europe. Europe and Asia are further ahead in their recoveries. That being said, we are starting to see opportunistic plays in the space. There is some distressed pricing at a 60% discount to current basis.”

Today, hospitality is bouncing back tremendously. See: How I'd Invest $100,000 Today. It discusses Sam's thoughts on investing in hospitality commercial real estate.

Commercial aviation coming back - how commercial real estate is affected

Retail Commercial Real Estate

According to the National Retail Federation, the retail sector contributes approximately $2.6 trillion (about 25%) to the U.S. GDP and is the nation’s largest private-sector employer. However, with only essential businesses allowed open under most stay-at-home orders, retailers have been hit hard. They have furloughed workers and shuttered stores.

According to Marcus & Millichap, April rent collection ranged from just 10-25% for mall owners with higher concentrations of nonessential tenants. Nonessential tenants include fitness centers, hair salons, bookstores. Rent collection was 50–60% for landlords with “essential” tenants such as grocery stores and pharmacies. 

What’s interesting is that it’s not just mom-and-pop retailers struggling to pay rent. Large retail tenants including Burlington Stores and Petco Animal Supplies. LVMH Moët Hennessy Louis Vuitton, Victoria’s Secret, and Staples all failed to pay rent in full.

Only time will tell which retailers will recover first when consumers feel confident enough to go out and shop. CrowdStreet Investments team typically looks for retail investment opportunities anchored by a grocery store. Grocery stores tend to keep parking lots full.

How Commercial Real Estate Is Getting Affected By COVID-19 And Where To Invest

Investing Opportunities In Commercial Real Estate

Here are the key points from CrowdStreet's analysis on commercial real estate and the coronavirus:

  • Industrial commercial real estate looks to be the most attractive type. This is due to the growth of distribution centers and data centers.
  • It's preferable to focus on Class-A multifamily apartments in a major metro. This is due to a greater percentage of white-collar workers who can work from home.
  • The default assumption is that office commercial real estate will decrease short-term as more employees work from home. However, office commercial real estate demand may actually increase over time. This is due to the desire for more personal space and adequate distancing. Workers will get more space now.
  • Hospitality commercial real estate may have the most opportunity for investors given CrowdStreet is seeing ~60% price cuts. If you believe travel will eventually come back, hospitality looks enticing at such levels.
  • Look for retail commercial real estate that has a grocery store as an anchor. However, retail's long downward trend is now accelerating.

As economies open up, the demand for commercial real estate should gradually rebound.

The key is to be opportunistic and look for deals that are offering sweeter terms to boost the risk/reward profile. CrowdStreet is diligently looking for such deals to showcase on its platform. Then it's up to us to invest in the ones that fit our investment goals the closest.

The commercial real estate market is roaring back post-pandemic. Multifamily homes and build-to-rent projects are especially attractive. I'm personally invested in more commercial real estate today.

32 thoughts on “How Commercial Real Estate Is Affected By The Coronavirus Pandemic”


    There is lots of REITs analysis these days – if you invest in CRE make sure (i) valuations are updated and stress them on top of that and (ii) check debt maturities – this could be your most important issue

  2. Olivia Parker

    I don’t think the consequences will be severe – it is hard to predict. Maybe prices will rise up to the sky and maybe they will drop down. Interest rate in real estate dropped drastically the other month but for now as may be seen it is starting to grow gradually to the previous levels (as before the Coronavirus)

  3. Sam, Fantastic article, per usual! Thank you for sharing this in-depth piece!!

    To your point on whether workforce housing will stay strong in the midst of pandemic/social distancing/unemployment….We’re a fully integrated real estate investment firm that owns and operates properties with a strong focus on workforce housing. In April, we observed extremely strong collections from our tenants, ending the month at an astounding 99.5% of budgeted collections. We shared an in-depth analysis article about our tenants’ sources of income (spoiler alert: there is strength and diversity among the income sources within “blue-collar” careers) and we believe the data supports that Workforce Housing is still a safe investment.

  4. It appears that quite a few companies will continue the work at home until at least the beginning of next year (as an example, Google just made that announcement). I suspect others will follow suit and at least some will make work from home permanent.
    I actually have a far greater concern at least with respect to the United States. Many Americans’ only social interaction is a direct result of going to an office. This especially applies to people who are living alone. What will become of a society where there is nearly zero live social interaction?

    1. I’m an extrovert and am happy two 1-2 social interactions a week. These interactions come through playing softball and tennis once a week.

      I’ve learned from the lockdowns that I don’t need 3-5 social interactions a week. But perhaps it’s b/c I’ve been trained since 2012 not to have too much social interaction anymore due to a lack of a job.

      I think people will come out fine fro this and really appreciate the social interaction that do get to have more.

  5. Great analysis. We have residential real estate with residential investment mortgages. The thing that has always kept us from CRE is the balloon financing and much more expensive due diligence typically involved. Yes, you can buy into a syndicate or crowdfunded investment but I don’t see that as enough diversification from other paper assets, where you can do research but ultimately have very little control. I’m looking at residential deals that can be financed by the 30-year fixed and possibly lock in rock-bottom financing while inflation runs amuck given all the stimulus spending.

  6. Money Ronin

    This is a very good analysis of the commercial real estate market and in line with what I’ve learned from the almost daily Zoom webinars I’ve seen since the beginning of the lock down. I’ll add a few more points.

    1. “Build to rent” single family houses will benefit as more renters seek social distancing.

    2. Class A multi-family is absolutely more stable than Class C; however, as a Class C investor, my collections rate has been around 90% of normal. It may get worse, but if you invest in an in-fill area (i.e., not Nevada or Arizona) with jobs, even working class people need housing. Everyone loves talking about investing in Class A, until you look at the numbers.

    3. Industrial (for online fulfillment) has been on fire for the last decade (followed by multi-family). Good luck finding any deals there.

    4. For the contrarians out there, commercial property managers have talked about businesses expanding their office footprint to allow for social distancing. For some companies, having employees in a central physical space is still considered to be a competitive advantage.

    As a multi-family investor, I am far more concerned about the regulatory environment (e.g. rent and eviction moratoriums, rent control, backlog of eviction cases in the court system, etc.) than the economic fall out of Covid.

    1. Great points! I agree with you on the regulatory environment. I am discouraged to ever invest in LA.

    2. Point #4 is definitely something that could surprise many folks. We’ve been packed in there like sardines for years now. How nice it would be to have more space by simply having half the workforce work from home. Companies can alternate who works from home and the office. That would be an agreeable solution.

      Looks like there was a greater collection of May rent in 2020 versus May 2019. A good sign the stimulus is working.

  7. Lots of cool factoids in this post, thanks! Interesting on the number of people willing to pay up for 2 day shipping. I feel happy to get 5 day shipping given the pandemic. Most things I’ve ordered are taking much, much longer and that’s fine with me. It’s to be expected.

    As for the affects on commercial real estate, I think there’s opportunities out there. Sure there are questions about the future and we don’t know yet how many businesses and work places are going to be majorly or permanently affected once the lockdowns are over, but I’m hopeful that a lot of businesses will survive and build back up to profitable levels with help from the PPP loans.

    Intriguing on the industrial real estate demand potential due to the need for more distribution centers and data centers, and the potential for office commercial real estate wanting bigger spaces so people are spaced out better in the work place. I know I was working practically on top of 5 people at my last job and would have gladly welcomed more space.

  8. Hi Sam –

    This is really good information. I guess the focus being on the US. What are your thoughts of the impact of Coronavirus on international real estate and REITs? The REIT structure is not as prevalent internationally and thus mostly REOCs. Is there really a need for international real estate if one focuses on US REITs, Fundrise, and Direct investments?

  9. Thanks for the informative article. I’ve been looking to invest in commercial real estate since most of my investments are in index funds, but I didn’t really know where to start. Also many RE syndications require you to already have a huge net worth

    I can see hotels recovering once the coronavirus pandemic fades, so I’ll be keeping an eye on hospitality commercial RE. I never had really considered that until this article

    Once the pandemic wears off, I expect industrial RE to decline as people return to their offices. But not to the levels before the pandemic as I expect the people who were forced to work from home during the pandemic to prefer continuing working from home and businesses realizing its benefits also. So there will likely be a decline, then a rise as more and more people realize the benefits of working from home. I expect the opposite trend for office RE

    1. Hi Max –

      I don’t know if industrial real estate will ever decline. Another hot area has been apartments. I think more of the younger generation favor apartments over home ownership.

      1. My real estate exposure is predominately in single family rental homes. However, I do own half of my small stand alone office building (literally small, 1200 sf remodeled, 100+ year old ranch style insurance office). It, like my rentals, are smaller, entry level properties. I’ve been wondering what Covid and the new reality will do to office space? For my situation, I’m hoping it’s all about location of the building and the oversized lot that may appeal to a buyer at some point in the future. I’ve always viewed the ownership on it as beating the hell out of renting, even if I walk away from it with small gains in the end.

        1. I talked with a colleague earlier with some private placement investors. They are in the process of calling investors to bankroll tenants who can not pay rent in small strip malls and apartments right now. Wow!

    2. You see the demand for Shanghai Disneyland tickets getting sold out in 3 hours and cruise ship demand rebounding for June+ bookings?

      I think demand is going to be huge once the economy opens up. I’m keeping the faith. You can’t change human behavior so easily.

  10. Hi Sam

    I own feel units at Four Seasons Miami which is closed right now and i received lots of inquiry trough Airbnb and , most questions about the availability of amenities , pool , gym. Feel like people want to get away ASAP when lock down lift.

    1. I think a lot of people will make bookings and want to travel, much more than expected once the travel restrictions are lifted. I definitely plan to go to Hawaii to see my parents. People want to see people they care about and love as we may never have another chance again.

  11. Reverse The Crush

    Thanks for the detailed review of the state of commercial real estate, Sam. I have a small position in a Canadian REIT (REI.UN) that has been hit bad by the pandemic. I know they have been investing more into multifamily buildings over the past few years out of concerns for the shrinking retail industry. This article is helpful to make sense of what type of businesses will still need space.

  12. Simple Money Man

    Office space will definitely decrease, hotels may see increase in business but perhaps only for a short term and will slowly come back strong (so many people simply love to travel and may be willing to take some risk). It’s possible people may decide to purchase their own vacation property so they have more control over cleaning and usage.

  13. Very detailed and well-written article Sam!

    I’m interested to see how office space performs moving forward. I work in the field, but my office is going to slowly start bringing people back in. Many of our office personnel are from out of state and are here on and off throughout the month. It’s going to be interesting to see if they bring the full workgroup back in or if they allow more remote work for the office. Not only would it save the company money in per diem costs, but it would save them a monthly flight and week off paid for the workers to go home once a month.

    It’s been a grand social experiment for sure, one that I will never be able to take advantage of, but great none the less. If companies are able to maintain workflow and quality with a workforce from home there are many benefits from allowing it from environmental, reduced travel time cutting down on lost time on the highway, decrease in maintenance costs for roadways and a lot more.

    Will definitely be interesting to see how companies respond after all this is over.

    1. Agreed Jason. I am hearing a lot of people saying that the office is dead. I very much disagree. The office as we know it is dead, although it is not going anywhere, it will simply change. Occupier will now focus more on collaborative space and provide amenities to their employees which they could otherwise not access from home. Amenities could include private libraries, free lunch or high end gym & shower facilities.

      The office will remain relevant as employees need to collaborate, trust each other and network in order to work efficiently from home. One question worth asking is whether we would all be working from home so efficiently had it not been for our working experiences in the office.

      I believe firms will only recognise how relevant offices are once economic activity picks up again and firms have capital at their disposal.

      1. Pretty cool Amazon is planning on buying a lot of retail mall space and convert them into distribution / fulfillment centers to dominate retail even more.

        I also believe offices will come back.

        1. Intirgued to hear your opinion on Amazon’s dominance. Whilst it is positive that they are making use of empty space and employing people, if they continue to dominate, does is not deny new entrepreneurial firms a chance of entering the market and innovating?

  14. I would certainly be hesitant to get into commercial retail buildings. Covid has accelerated the amazonification of commerce. Even when the all clear sign is given I am sure there will be a segment of the population hesitant to go back out and shop in local stores.

    The hospitality sector is likely a long term play but covid again highlighted how fragile the sector is. With earth’s population growing by leaps and bounds the density in major places (where travel to is more likely) sets it up for future pandemics.

    I’m predominantly invested in multi family (mainly b class) and hoping that it continues to be one of the more resistant sectors like it has been in the past.

      1. I just checked. O is up $4k in my brokerage account. I have VNQ/VGSLX in multiple accounts, but I know it has done very well since I bought it (I know up over $22k in that holding (VGSLX) in 401k. Hopefully continues. Definitely glad I rebalanced back into it across the board.

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