The Azucena Take: Commercial Real Estate Performed Better Than Expected in 2020

The pandemic transformed the economic landscape as shops closed and companies implemented work from home policies. This may look like a picture of doom and gloom but the numbers tell a different story.

Marcus & Millichap looked at the vacancy and absorption rate of four different property types across the country. These indicators were used to measure the demand for apartments, industrial, office and retail. The result is that we see a better looking 2020 along with hope for 2021.

Here is a summary of the vacancy and absorption rate for apartments, industrial, office and retail:

Apartments had a low vacancy rate for 5 year before the pandemic. In 2020, it only saw a minor spike of 4.4% (which is still lower than the vacancy rate in 2017). When looking at the absorption rate, it shows that demand has been strong. There has been little loss while 285K new apartments were rented out. Even though many counties have implemented a rent moratorium, it has had little impact on the overall gains.

Industrial saw a minor spike in low vacancy rate followed by a drop later in the year. While net absorption rate was also low compared to previous years, it was greater than in 2019. Investors are more upbeat about the industrial sector as they expect a boom once most of the population has been vaccinated.

Offices saw a vacancy rates of 15.5%, one of the biggest spikes since the 2008 crash (16.3%). The net absorption rate was at -150m square feet. While the numbers do look bad, this has been attributed to most leasing decision being put on hold because of the pandemic. Investors expect the numbers to grow once most of the population has been vaccinated.

Retail was the biggest surprise as it saw a vacancy rate of only 5.5% in 2020. However it also had a low absorption rate at -26m square feet. This is due to a number of retailers closing down while others have been successful.

Even though the pandemic has changed the economic landscape, the numbers tell a more uplifting story. With the vaccine rolling out, investors are confident that 2021 is going to be a solid year. While it’s easy to see the bad news, one should seek the comfort in the data.