The impact COVID-19 had on the commercial real estate market and the economy will make 2020 one of the most unforgettable chapters of our lifetimes. Global markets plunged as cases of the virus spread throughout the world. As companies closed their doors this led to significant sales decreases across most restaurant sectors. While we did see a slight drop in vacancy rates, the average price per square foot fell for the first time since 2016. This could be because many landlords were more willing to work with their existing tenants by deferring rent or modifying the lease term.
There was a huge decrease in demand during 2020 for sit-down restaurants, hotels, and office space. The sales volume for retail properties went from $196M in 2019 to $117M in 2020 representing a 40% decrease in sales volume. While the volume was down significantly the average price stayed the same at $1.7M. There were signs of improvement with retail sales volume rebounding during the 4th quarter of 2020 with more than $56.8M sold compared to $52.5M sold in 2019. The average price per square foot for retail properties also dropped significantly going from $200/SF in 2019 to $148/SF in 2020. Industrial sales volume took a significant decline in 2020 going from $214M in 2019 to only $52.2M in 2020. The price per square foot went from $62/SF in 2019 to only $35/SF in 2020.
These numbers should not be viewed as any sort of warning sign as there was a significant decrease in available properties for sale during 2020 as compared to 2019. In fact, the 2020 4th Quarter Available SF for Industrial property is at the lowest level since they started recording these figures in 2005. In 2020, the Office market saw significant increases in the price per square foot but saw the volume decrease significantly. The average sales price per square foot in 2020 was $196/SF with $39.4M in volume as compared to $115/SF on $89.2M in volume in 2019. Just as with Industrial and Retail, the Office market showed signs of optimism as we saw an increase in the Sales Volume during the 4th Quarter, going from $22.4M in 2019 to $25.3M in 2020. COVID-19 has forever changed the way we do business. Will the closure of offices in Downtown Chicago push satellite office space to Northwest Indiana or will they continue to use the Zoom from home model?
Will the growth of the home market help rebound a much-needed retail environment, or will the Amazon effect continue to push small retailers out of business? Does the stock market volatility continue to push investors into CRE investments or does that CRE market’s low cap rate environment start to worry investors? These are all complicated questions and only time will tell. Either way we are here to help. Thank you very much to our clients, customers, family, and friends. God Bless our area, country, and the rest of the world as we continue to fight this virus!
Aaron McDermott
CCIM, LEED GA
