Commercial real estate outlook

Q4 2020: Separating the signal from the noise

While the commercial real estate market continues to cope with impacts of the pandemic, we outline performance expectations for key sectors and dig into the dispersion created by this environment.

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October 13, 2020 | 24 minute read

The commercial real estate market continues to cope with the impacts of the COVID-19 crisis. With lockdowns broadly being relaxed across the U.S., the economy improved at a quicker pace during Q3 than most expected. However, while the most acute stress has likely passed, significant uncertainty remains around the economic recovery. The pandemic has driven a wedge between fundamentals for different property types and geographies, and although activity in the CRE market has declined, current dynamics differ considerably from what transpired during the Global Financial Crisis.

Key takeaways

  • Economic activity recovered at a quicker pace than expected in Q3, and as a result we’ve seen the pace of newly stressed properties continue to abate. However, significant uncertainties remain, especially around the labor market, the virus and the November election.
  • Transaction activity has slowed materially, as is typical for an economic downturn. Despite this, we continue to see strong refinancing activity, which has helped keep the CRE market afloat.
  • The primary theme of the COVID-19 crisis continues to be the massive dispersion among CRE property types. Industrial properties and suburban apartments have seen fundamentals hold steady, and in some cases strengthen, while malls and hotels continue to struggle.

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Any projections, forecasts and estimates contained herein are based upon certain assumptions that the author considers reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The inclusion of projections herein should not be regarded as a representation or guarantee regarding the reliability, accuracy or completeness of the information contained herein, and neither FS Investments nor the author are under any obligation to update or keep current such information.

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Matthew Malone, CFA

Managing Director, Real Estate

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