Twin Cities Commercial Real Estate Suffered in Second Half of 2020
Despite the rise in residential real estate transactions last year, commercial real estate was badly affected by the COVID-19 pandemic in 2020. In contrast to the $1.3 billion in apartment-building sales at the end of 2020, retail stores, hotels and offices only saw vacancy rates rise.
Cushman & Wakefield undertook a research report on how the pandemic has affected commercial real estate in the Twin Cities. Its results showed that in 2020, only 33% of hotel guest rooms were occupied and at least 45 Minnesota hotels temporarily shut down for the year. Further, vacancy rates at Minnesota offices rose to 18.5% during the second half of the year. In addition, new leasing activity in those office spaces fell 42% from where it stood in 2019. By the end of 2020, the amount of vacant sublease space had increased 30% since the first quarter of 2020.
Remote work has caused many who lease office space, or have large offices downtown, to reconsider how much space they really need. Many businesses are still working remotely as the pandemic continues, leaving downtown offices vacant. Some businesses have already made the decision not to renew their office leases and become completely remote.
While residential building sales rise and individuals continue to work remotely, online shopping has become a key area for businesses to maintain profits. As a result of the rise in online shopping, as well as other factors that the pandemic has created, factories, warehouses and other industrial properties have done well throughout the pandemic. This rise in online shopping, and demand for warehouse and factory space, has not had a positive impact on traditional retail storefronts.
The demand for office space and retail space remains low. According to Cushman & Wakefield’s research report, commercial real estate is making a slow return, and there is still hope that demand will continue to rise in 2021.