Could May Have Been the Bottom of the Downturn?

The month of May could be the bottom of the downturn, at least for the commercial real estate sector. Commercial real estate data from LightBox, including environmental report activity, suggests that May could have been the worst month for commercial real estate investment activity during the pandemic.

“Input from the commercial real estate sector suggests that May could well be the bottom of this downturn, and we are beginning to see early green shoots as commercial property transactions begin to recover from the late 1Q2020 shock related to the pandemic,” Dianne Crocker from LightBox tells “The latest LightBox May Confidence Index, based on a monthly survey of due diligence professionals, lenders, brokers and appraisers across the U.S., reflected slightly more optimism in the commercial real estate markets over the past month than in April.”

However, while optimism began to rebound in May, the month continued to be slow in terms of activity. “Most respondents were still operating at less than their typical capacity in May, with many proactively shifting employees’ focus areas of responsibility away from projects dependent on property deals,” Crocker says. “One reported slight improvement as “some clients are getting active now, but others are waiting for things to settle a bit more.” Another key change exhibited by the May survey results was a lengthening in the expected horizon for the market’s expected return to pre-pandemic levels. In the April survey, 36% of respondents expected recovery by 4Q2020 or 2021, increasing to 47% this month.”

While optimism is turning, and hopefully activity will follow, the recovery will depend on a vaccine and will vary between geographic markets. Industrial and vacant land will likely recover first, according to Crocker. “The greatest uncertainty affecting the forecast is that there is still no widely available vaccine for COVID-19, and until there is, the markets remain vulnerable to another uptick in infections and the possibility of a return to shelter-in-place restrictions that could adversely affect the real estate market,” she says. “It is also worth noting that the pace of recovery will vary widely by geographic market and asset class given that the pandemic hit different areas with very different degrees of severity.”

While the market dislocation will likely produce some distressed asset opportunities, owners are currently focused on restructuring debt to reduce downside risk. “Looking ahead to emerging opportunities by asset class, early deals are expected to be in industrial, warehouse and distribution, multifamily and vacant land,” says Crocker. “This is consistent with broader market trends that point to demand for sites supporting the booming e-commerce sector, the need for housing rentals in healthy metros and the opportunity to buy land at a time when site access is challenging.”

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