NAR’s July 2020 Commercial Market provides insights into how the commercial real estate market is fairing throughout the coronavirus pandemic. The industrial property market performed relatively well and was one of the investors' preferred asset classes as it was not as negatively affected by the coronavirus pandemic as others. The industrial market was of critical importance throughout the coronavirus pandemic as it was accented by the acceleration of e-commerce growth as consumer spending habits favored shopping more online with respect to physical brick-and-mortar limitations.

Industrial property volume decreased from April levels but still up YTD

Industrial property sales valued at $2.5 million or over decreased by 70% in May from one year ago, to $2.1 billion. Industrial property sales transactions substantially decreased from 680 deals in May 2019 to 165 in May 2020 and also represents a decrease from April 2020 levels. The average per square foot has decreased 5% since February, to $95 in May, and represents an increase of 6% from year-ago levels. Cap rates remain essentially unchanged at 6.2%.

Bar chart: Industrial Sales Dollar Volume

E-Commerce growth accelerated

E-commerce, already increasing year-over-year, saw another increase in Q1. E-commerce brought in $160,333 billion in the first quarter which was at the beginning stages of the COVID-19 pandemic. This represents an increase of 2.4% from Q4 2019. Total retail sales for Q1 2020 was estimated at $1,363.5 billion and represents a decrease of 1.3% from Q4 2019. E-commerce sales in Q1 2020 accounted for 11.8% of total U.S. retail sales.

The shift towards e-commerce may be permanent as May's economic data illustrates how non-store retailers have grown throughout the coronavirus pandemic. Industries in the non-store retail sub-sector saw sales increase throughout the pandemic.

Line graph: Quarterly E-Commerce Retail Sales as a Percent of Total Sales Since Q1 2019

Industrial job market continues downward trend

Despite being one of the strongest asset classes throughout the coronavirus pandemic, the industrial job market continues its downward trend in May. Transportation and warehousing employment decreased by 28,300 or 0.55% from April estimates which dramatically fell from the prior month.

Although, transportation and warehousing employment has decreased slightly from the prior month and figures are below levels from earlier this year, it has fared well in comparison to other sectors.

Line graph: Transportation and Warehousing Employees SA Thousands

 Industrial CMBS loan default rates decrease

The reduction in economic activity for the majority of March through May result in reduced revenue and cash flow collections from commercial assets. The industrial sector was the only sector to decrease delinquency rates among all commercial property types. According to Trepp, the industrial delinquency rate decreased 25 basis points towards 1.57% from May’s 1.82% and represents the lowest and only decrease in basis points from the prior month by commercial property type. June 2020 industrial delinquency rate is down 37 basis points year over year.

Bar chart: CMBS Delinquency Rate by Property Type

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