COVID Impact on US Commercial Property Values: The Real Numbers

On March 11, 2020, the World Health Organization (WHO) declared COVID-19 a global pandemic. On May 11, 2023, the US government officially ended the public health emergency of COVID-19. During the 39-month period, the ultimate impact on US commercial property markets was unknown. Now, we can look back and review what happened and what remains an issue in a changed market environment.

Some of the key drivers that had an influence on performance of commercial properties during this period include:

  • Mandated Government Shutdowns
  • Perception of Safety
  • Pivot Strategies
  • Stability Funding

The government-dictated shutdowns had an immediate detrimental effect on hotels, restaurants, movie theaters, entertainment facilities, and other service enterprises. During the months following the initial shutdown, when properties were open, safety from COVID-19 became paramount for employees and patrons. This included disinfecting strategies, partitions, personal protective equipment (PPE), social distancing solutions, and health testing. Those enterprises that pivoted to the new environment fared far better than those that did not.

However, as the public continued to reduce their activities, businesses needed alternatives. Retail establishments created a robust online ordering and fulfillment strategy, restaurants scaled up their takeout and delivery operations, and businesses that relied on office workers established successful work from home policies. These were critical to maintaining business. Finally, the funding offered by the US government in the form of loans, grants, and direct payments, totaling $2.5 trillion, helped stabilize the market.

Today, the big question is: “Are we back to 2019 or pre-COVID numbers in commercial real estate markets?” The answer is complicated.

Hotel and hospitality

Within the hospitality and hotel market, the answer seems to be mostly “yes.”

According to data compiled in August 2023 and reported by S&P Global Market Intelligence, hotel REIT occupancy rates ranged between 75 percent to 83 percent between 2018 and 2019. The market then collapsed in 2020 but gradually recovered between 2021 and 2022, finally stabilizing at 76 percent by mid-2023.

A valuation of a hotel property during 2020 and 2021 would need to capture the short-term impact of COVID on financial performance. Methods such as applying a direct discount of discounted cash flow analysis support this type of analysis.

Office market

The story in the US office market is completely different. When office workers were mandated to stay home and companies adapted to this new way of working, a major paradigm shift took place, and it is holding into 2023.

According to data from Cushman & Wakefield, the average office vacancy rate in the US was around 12 percent in 2019. This drastically increased in 2020 and continued to rise even as businesses began to open and restrictions lifted. In 2023, the vacancy rate hit 18.5 percent and this number may continue to rise as long-term corporate leases expire and workers remain at home.

In this market, the pandemic was a catalyst for a potentially permanent change in the demand for urban office space in the US. A valuation of past dates must account for the risk of increased future vacancy.

Industrial sector

Within the industrial sector, warehousing was already benefiting from the continued growth of ecommerce, but the pandemic rapidly escalated this market. By the end of 2022, the average US warehouse vacancy rate was only 3.2 percent¹, and this number is likely to stabilize or fall as projections show ecommerce continues to take up more of the percentage of total retail sales. By 2025, ecommerce is forecast to make up 22 percent² of the total US retail sales forecast, up from 10.7³ percent in 2019.

These underlying pricing and sales trends in industrial real estate are so strong that even a recession in 2023 is not likely to reverse them entirely. Within this asset class, the pandemic may be perceived as having a nominal impact, or being an actual positive to demand growth, due to the increased need for space for shipped goods.

This is in direct contrast with the “brick and mortar” retail market, which was put under pressure during the pandemic and continues to adapt to ongoing ecommerce trends.

Retail market

As mentioned above, the retail market was already in a long-term transition toward ecommerce solutions when the pandemic hit. The impact of having stores closed for months at a time was devastating to long-established brands with deep customer relationships. According to a study produced by the Journal of Service Management, COVID-19 shaped both consumer needs and behavior, and how retailers respond to these changes.

Moreover, the study suggests that this will not only affect market outcomes (i.e., retail sales and market share online), but also firm outcomes (i.e., customer experience, firm sales), as well as the competition between online and offline retailers.

This suggests that “buying psychology” has changed because of the pandemic, and it continues to change. Some examples of these changes include curbside pick-up, contactless payments, voice commerce, and in-store digitization.

For retail real estate, the brands that can serve in-store traffic and have a strong ecommerce and digital strategy will have the best outcomes. It is unclear if more retail space is needed in the US, or if a different set of development criteria will emerge in the future, such as increasing mixed use developments or portions of buildings being committed to drive-up fulfillment.


According to data from Technomic, a restaurant research firm, there were about 631,000 restaurants in the United States in 2022. That’s roughly 72,000 fewer than in 2019, when there were 703,000 restaurants in the country. The pandemic accelerated the closure of a number of restaurants that were likely struggling already or had no ability to adapt to the new environment created by COVID-19.

Valuation of assets within commercial properties

The perception that the pandemic was bad for all commercial properties does not match with a review of results. The health risks, government intervention, and fear and confusion all contributed to a difficult period in America, and a basic treatment on macro trends will not do justice to the myriad of detailed situations that occurred for businesses and real estate projects.

The industrial sector was a clear winner while office leasing was a clear loser, and hotels took a hit but recovered. The consolidation in the restaurant space was likely at a tipping point pre-COVID, and that event accelerated closures. Any valuation of assets within these classes on a retrospective or past date basis requires recognition of the trends.

About the Author

Rich Correll brings 35 years of real estate consulting and valuation experience to his clients and is well versed in a variety of valuation issues concerning both local and national markets. He has significant experience in various types of commercial and investment properties. Mr. Correll has managed and prepared reports on numerous complex engagements in connection with litigation, insurance claims, financing, corporate financial reporting, and advisory services as well as other purposes.


  1. Market Update: Q4′ 2022 Warehouse Pricing Index report – WarehouseQuote
  2. U.S. e-commerce share of retail sales 2021-2025 | Statista
  3. 2019 E-Stats Report: Measuring the Electronic Economy (