The coronavirus pandemic has taken a serious toll on the nation’s real estate market as economic uncertainty and business closures have stifled activity.

The trend isn’t expected to get better any time soon as forecasts for 2021 appear equally as gloomy because of the impact from COVID-19. The only winners so far are data centers, cold-storage warehouses, and industrial manufacturing sites, according to commercial real estate market veterans like Paul Daneshrad.

The reality is since March when the pandemic began, business closures, layoffs, forced shutdowns, and uncertainty about when workers will return to the office has caused buyers to sit on the sidelines. As COVID-19 infection numbers continue to rise, with three separate surges in cases, hospitalizations and deaths recorded this year, there is decreased interest to invest at this point in commercial real estate.

Even with vaccines for COVID-19 being rolled out, there are still too many unknowns about the future of business activity in the U.S. to help the struggling commercial real estate market recover. As a sign of the harsh economic times, leaders in New York City’s devastating commercial real estate market have proposed converting about 1 million square feet of prime Manhattan office space into housing in an effort to avoid a potential collapse in property values, according to the New York Times. 

The challenges of the commercial real estate market come as residential real estate remains relatively robust during the pandemic. The National Association of Realtors reports continued growth in existing-home sales, up for the fourth consecutive month in September to 6.5 million nationwide. That’s up 9.4 percent from August and it is a 21 percent increase from one year ago, according to the national Realtors group.

One of the main areas hit hard by the economic fallout from the pandemic has been retail, with more retailer businesses going bankrupt in 2020 than during the Great Recession of 2008. And hit especially hard have been department stores and apparel stores, according to Yahoo Finance. As consumers stay inside and shop online from their homes, brick-and-mortar retailers are forced to use up their cash reserves to stay afloat. That continued trend is expected to create more vacancies in retail properties, forcing more landlords who rely on rental payments to default on their loans in the first half of 2021.

After A Harsh 2020, The New Year Looks Bleak For Commercial Real Estate In U.S. as COVID-19 Pandemic Rages On

Also of concern to commercial real estate investors for the coming year is the impact of President-elect Joe Biden’s tax proposals. After Biden takes office in January, industry leaders will be keeping an eye on his efforts to pass a tax plan. During the campaign, he said his broad tax plan would include the elimination of like-kind exchanges, also known as a 1031 exchange. The proposal would impact real estate investors earning more than $400,000 annually.

As more efforts are made to distribute millions of doses of vaccines to U.S. citizens in the coming months, the virus continues to spike throughout the country with record-breaking numbers of infections, hospitalizations, and deaths. The vaccines offer some hope that the surge in COVID-19 activity could diminish early in 2021. But the virus’s impact on commercial real estate is expected to continue long into the year as businesses struggle to recover and employers reconsider how to use office space once vacated to help reduce the spread of COVID-19.