Coming into 2020, the commercial real estate (CRE) market appeared to be particularly healthy, with capital available, property leverage moderate and price growth leveling to a sustainable pace. Enter COVID-19, a black swan event that has engulfed financial markets and sent world economies into a presumptive recession. The speed with which this outbreak has impacted activity has been unprecedented, and many uncertainties remain about the ultimate effect on economic growth and asset prices.
For commercial real estate, it is important to remember that all recessions don’t hurt the same. Property returns do tend to moderate during downturns, as real estate is inextricably connected to economic activity. However, the 2008 financial crisis appears to be an exception, not the rule, for how CRE has performed in previous recessions. Still, this downturn is unique, with a fear-inducing health crisis leading to an economic crisis – a potentially destructive combination. Our outlook this quarter will examine the CRE market’s state as it came into this downturn, as well as items to watch as we progress through it.