Our commercial real estate market has been on a wild ride this year. Here's the data on different asset classes value returns and rent collections.
Our commercial real estate market has been on a wild ride this year. The divide between winners and losers amongst CRE property types (multifamily, industrial, office, retail, hospitality, etc.) deepens as we all adapt to a new way of living. Entering our final quarter of the year, we took this opportunity to analyze what has happened so far and make some predictions on the immediate future of CRE.
Some of our findings might surprise you.
It’s no secret that Covid-19 has sent the commercial real estate world into a frenzy. When the pandemic reached US soil, no one knew how the market would pan out. There remains much uncertainty but, as we continue to move forward, we’re able to look back at the first half of the year (H1 2020) to determine how different sectors fared.
Based on the data, the most opportunistic investments are in hospitality, retail, and traditional office sectors. Social distancing measures and mandated retail closures are hurting these property types that rely on non-essential human interaction.
On the other hand, with more companies moving their operations online, it’s no surprise that data centers, cell phone towers, and industrial properties posted the best H1 2020 returns. The world is moving even faster towards digital.
Although traditional office properties had one of the worst returns, office tenants are still paying their rent at a high percentage. This divide signals poor investor sentiment as to the future of office even though tenants are still able to pay rent.
Unfortunately, retail properties produced both terrible returns and had tenants that struggled to pay rent. On the capital side, most lenders are only interested in lending on “essential” retail (also known as “internet-resistant” retail).
Research by Marcus & Millichap anticipates that medical office and industrial will continue to lead rent collections throughout 2020. Multifamily rents in metro areas may suffer in the short term as vacancies rise because renters are moving to suburban areas. Single-tenant retail could have a speedy recovery because these tenants are able to adapt operations quicker. Multi-tenant retail will continue to struggle the most with rent collections, especially properties without necessity-based tenants.
Good luck out there friends.
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