Commercial Real Estate Changed Forever By Covid
By ERIN FLYNN JAY
It has been five years since the COVID-19 pandemic shutdowns began, and the commercial real estate sector remains forever changed.
On March 11, 2020, the World Health Organization determined COVID-19’s outbreak had reached the level of a pandemic. On March 13, the first Trump administration declared a nationwide emergency and states began to implement shutdowns on March 15.
On March 27, President Donald Trump signed the Coronavirus Aid, Relief, and Economic Security Act into law. With businesses shuttered throughout the country, the act included funding for $1,200 per adult with expanded payments for families with children.
The act expanded unemployment benefits, forgivable small business loans, loans to major industries and corporations, and funding to state and local governments in response to the economic crisis caused by COVID-19.
In many ways, America has recovered from the crisis. But the pandemic changed the commercial real estate sector, with long-lasting effects on office, retail, and industrial properties.
Given the shocks to the economy from COVID lockdowns, inflation, and interest rate hikes, CBRE Global Chief Economist Richard Barkham said the real estate sector is in remarkably good health.
“Vacancy rates have risen, and values have fallen, but outside the office sector, net absorption has remained positive and there has been no widespread defaults on loans,” said Barkham.
Barkham said out of all of the changes to commercial real estate, the office sector has been impacted the most. Companies have reduced their office footprints as employers offer hybrid schedules and remote options.
Companies have shied away from leasing older, poorer quality stock, preferring to locate in newer spaces. This is known as ‘flight to quality’ and is a key trend.
Barkham said that by the end of this year, there will be a shortage of high-grade space.
“Demand for office is recovering, but 10% to 15% of the office stock is now regarded as obsolete,” he said.
Outside of office space, the multi-family housing sector is strong, partly because it is so expensive to buy a single-family home. Industrial and logistics space also remains in high demand, said Barkham.
Retail is in a good position after the pandemic because industry leaders were already adapting to a changing landscape.
Joe Brady, former head of real estate for Walgreens who served as CEO of Americas at The Instant Group, explained that over the last decade, retail square footage decreased due to demolitions, conversions (e.g., malls to multi-family or flexible office space), and the closure of underperforming big-box stores.
“Over 100 million square feet of retail space was removed from the market,” said Brady.
Brady said grocery-anchored centers became the most attractive subsector, driven by consumer preference for convenience and essential goods. Population growth in the Sunbelt states, spurred by migration trends, helped bolster this trend.
According to Brady, the pandemic fundamentally changed every sector of commercial real estate.
“The pandemic was less an accelerant and more a tectonic shift that redefined how and where people work, shop, and live,” said Brady. “The office sector struggles to recover, the retail sector thrives on necessity-driven demand, and the industrial sector is booming due to the AI and e-commerce revolutions. In 2025 and beyond, consumer behavior will remain the guiding principle for CRE investment and development decisions.”
What does the future of commercial real estate look like?
Brady said the AI revolution has created unprecedented demand for data centers. At the same time, the continued growth of e-commerce has sustained demand for logistics and warehousing space.
After a decade in corporate finance, Wesley Kang, Founder of Realtor 1099Cafe in Los Angeles, is seeing permanent shifts in commercial real estate.
His corporate clients aren’t just downsizing. They’re reinvesting in spaces that prioritize collaboration and well-being. Last quarter, Kang helped a major tech client transition to a smaller but more efficient space, cutting costs while boosting team engagement.
Looking forward, he thinks that mixed-use is the future. In these developments, residents can live within walking distance of work, shopping, and social activities.
“Through 1099Cafe, I’m guiding several property owners in LA to convert traditional offices into dynamic spaces that blend work, life, and community,” said Kang. “The numbers speak for themselves – one of my recent mixed-use conversions saw occupancy rates jump from 60% to 95% in just six months.”
Editor Kimberley Haas contributed to this report.