The Pandemic’s Continued Effect on Commercial Real Estate

The economic impact of the COVID-19 pandemic crisis in 2020 was strong. Shut-downs and isolation led to huge job losses, household consolidation and, of course, eventual supply chain issues.

John Chang, Marcus & Millichap’s senior vice president, national director of research and advisory services, indicated that both the national economy and commercial real estate continues to be impacted by the pandemic, even as much of the crisis is in the rear-view mirror. In a video on the topic, “The Lasting Impact of COVID on CRE,” Chang pointed out that inflation and Federal Funds rate increases are still working their way through the system.

The pandemic is also continuing to influence the following:

Household Consolidation

Chang explained that during the pandemic lockdown, approximately 1.5 million young adults moved in with family members. “There are still about 3 million more young adults living with family than the history norm these days,” he noted.

Along those lines, COVID delayed marriage, but it’s estimated that the number of marriages in 2022 could top 2.7 million (up from less than 1.7 million in 2020). “This wave of weddings contributed to a surge in household formation that drove apartment vacancies down and also likely contributed to the rapid escalation of single-family home sales in 2021 and 2022,” Chang said.

Supply Chain Issues

The huge demand for goods during the pandemic led to huge supply chain bottlenecks in the immediate aftermath. Chang acknowledged that the issues have been “partially repaired,” but will continue to evolve over the next decade. This will be true, especially as “companies choose to move manufacturing and production closer to the U.S.,” Chang said. “That will have a profound impact on industrial properties.” Also impacted? Office space demand, retail and housing, due to migration to the jobs. Speaking of which . . .

Population Migration

Though one large piece of news during the pandemic was the move from larger cities to less-dense suburbs, Chang noted that such migration was already occurring. Still, “when offices shut down and people were allowed to work from home, it empowered those workers to move to the suburbs or entirely different cities,” he said. This impacted urban apartment vacancy and retail rates, which were lower than their suburban counterparts. It has also impacted office vacancies, though Chang pointed out that suburban office has held up better than urban office space.

Furthermore, getting back to the marriage trends mentioned above, Chang said that married couples tend to migrate to suburbs and smaller cities, especially if they have children. This will continue to boost the city-to-suburb migration trend, with an impact on housing and retail service.

The Ongoing, Post-Pandemic Effect

Chang pointed out that the U.S. continues dealing with issues created by the pandemic, including behavior, values and lifestyles. These, in turn, will continue to influence the various commercial real estate property types, their locations and investor decisions.