With a COVID-19 vaccine unlikely to be widely available until deep into 2021, the pressures on the commercial real estate industry look unlikely to abate soon.

The results from our cliffhanger of a presidential election haven’t changed one major fact – the coronavirus remains the No. 1 threat to the future of the office market, both in Boston and around the country. 

And while a vaccine would be great, developers and office tower owners should be rooting – and lobbying hard in the corridors of power – for better public health measures, which are likely the only way we can get the pandemic under control. 

Right now, things are not going particularly well on that front.  

A day after the election, new infections in the U.S. topped 100,000, with no end in sight to the steadily increasing numbers of people falling ill with the virus. 

More than 233,000 people have died from COVID-19, and, as you read this, that number that may very well have crossed the 240,000 mark. 

As the COVID outlook has gone from bad to worse, so has the commercial real estate sector. 

The Nareit Index, which tracks publicly traded real estate investment trusts, from office giants like Boston Properties to obscure REITs that own medical facilities, fell in October, hitting lows not seen since the dark days of April. 

Office building and tower owners saw a spike in rent relief requests in September, according to NAIOP, the commercial real estate trade group, while the number of commercial landlords reporting that most of their tenants were on-time with their payments slipped to 74 percent. 

Sensing blood in the water, real estate investors are pushing for big discount as well when negotiating deals for new office towers and shopping centers, 

It’s quite a price cut they want, as well, with the MIT Center for Real Estate Price Dynamics Platform estimating buyers on the hunt for office towers, shopping centers and the like are seeking a 12 percent discount, with that number rising to 27 percent in the troubled New York market, noted Joshua Olshin, managing partner at Auction Advisors, in New York City. 

The Stock Market Knows 

It would be easy to blame this all on the economic downturn, but the far bigger culprit right now is the coronavirus, which the commercial real estate sector is much more vulnerable to than other parts of the economy. 

You don’t need to look any further than the dramatic divergence over the course of 2020 between the stock market as a whole, which has had a surprisingly robust year, and the share prices of the real estate investment trusts that dominate the commercial real estate sector. 

The Dow Jones Industrial Average has rebounded from a low of around 18,500 in the spring to 27,847 as of Nov. 4, not quite back to where it was late last year – approaching 30,000 – but still quite a comeback. 

When it comes to the economy as a whole, investors appear to be fairly optimistic.  

That is, except for commercial real estate. 

The stock prices of office REITs have tumbled more than 30 percent in 2020. Retail REITs down nearly 40 percent and hotel REITs having plunged nearly 50 percent. 

People wait at a bus stop in Seoul, South Korea’s busy Gangam district. America could look to South Korea for a plan to defeat COVID-19 without waiting for a vaccine to emerge.

CRE Relies on Crowds 

The bottom line is that recovery in the economy, on its own, will not be able to power a comeback in the commercial real estate sector. 

Office towers and buildings, malls and hotels all involve, to a greater or lesser extent, large gatherings of people inside confined spaces, making them particularly vulnerable to the disruptions caused by COVID-19. 

Investors know this, and so do executives in the commercial real estate sector, whether they are in the business of leasing offices or retail space or running hotels. Many companies across the commercial real estate field have taken significant steps to protect their tenants and customers and reduce the risks of infection to as low a level as possible. 

But there is only so much property managers and industry executives can do on their own. No office building, hotel or mall is capable of being an infection–free island if every city and state is following its own rules – some strict, others incredibly lax. 

The Way Forward 

While President Donald Trump has put all his eggs in the vaccine basket when it comes to his administration’s efforts to combat COVID-19, it seems unlikely that vaccines alone will be some sort of silver bullet. 

Even if there is a vaccine or vaccines that prove to be highly effective, we could be talking another year or more before the virus is finally brought to heel. 

This leaves the only proven way to contain COVID-19: The blocking and tackling of rapid and extensive testing, social distancing and uniform, or nearly uniform, mask wearing. 

I say proven because that’s the formula China and South Korea have used, and the result has been a significantly faster economic recovery, including a stronger rebound in their commercial real estate sectors.  

The Asia–Pacific Region saw deals for office towers and other commercial properties posted a 38 percent jump in activity in the third quarter over the second, according to CBRE. 

Overall deal volume was still down 27 percent in the third quarter compared to the same period last year, but that’s a pretty modest decline compared to what happened in the U.S. 

Commercial real estate investment activity region-wide rebounded in the third quarter compared to the second in the U.S., but it is still down nearly 60 percent compared to last year. 

Scott Van Voorhis

That was the worst showing of any region in the world. 

The message is pretty clear, here. If the commercial real estate sector in the U.S. wants to inoculate itself against even deeper and more painful losses, it had better start lobbying President-elect Joe Biden for a more effective, national effort to finally bring the COVID-19 epidemic under control. 

All the rosy economic projections in the world won’t matter as long as a simple trip to the office remains a potentially life-altering proposition. 

Scott Van Voorhis is Banker & Tradesman’s columnist; opinions expressed are his own. He may be reached at sbvanvoorhis@hotmail.com. 

Updated 12:26 p.m. Nov. 9, 2020: This story has been updated to reflect President-elect Joe Biden’s victory in the 2020 election.