17 March 2020
  • As has been observed in Asia, the U.S. office sector likely will be less affected by the COVID-19 outbreak than other commercial property types, particularly hotels and retail.
  • Energy-dependent office markets, such as Houston and Denver, may experience a more turbulent 2020 due to lower energy demand, lower oil prices and an increase in overseas oil production. Other markets with a concentration in transportation and trade may also see more volatility.
  • Some office markets may be more insulated, based on their main industry drivers of leasing activity. These include Manhattan, the San Francisco Bay Area, Los Angeles, Boston, Philadelphia, Chicago, Dallas/Ft. Worth and Washington, D.C..

While it is too early to evaluate the full effects of COVID-19 on commercial real estate, some U.S. office markets have a greater exposure to industries affected by the virus and may experience a much more turbulent 2020 than others.

Markets that are more likely to be adversely impacted have a relatively high share of leasing activity from the following industries: energy, airlines, transportation, distribution, wholesale trade, hospitality, travel and fitness (Figure 1).

Figure 1: Major Markets by Percentage of 2018-2019 Office Leases by Directly Impacted Industries*

Turbulent 2020 Unfolds-fig1

Source: CBRE Research, March, 2020.
*Energy, transportation, distribution, logistics, wholesaling, warehousing/storage, hospitality, hotel, leisure, travel, fitness, airlines, manufacturers and companies that service aviation.

Clearly, energy-dependent markets like Houston and Denver will be most affected. Houston is still recovering from the historic decline in energy prices in 2014, and the recent drop in oil prices will cause further disruption. Nevertheless, diversified job growth, attractive demographic trends and a vibrant Eds & Meds sector should act as a counterbalance for Houston.

Other markets like Atlanta, Chicago and Dallas/Ft. Worth may see adverse effects from less travel and trade. Impacts to smaller markets like Memphis, Charleston, Columbia and Greenville could occur from disruption to trade and distribution.

Markets with little exposure to the most directly affected industries include the San Francisco Bay Area, Manhattan, Los Angeles, Philadelphia and Washington, D.C. Perhaps surprisingly, office markets in tourist destinations like Las Vegas and Orlando may have less exposure to directly affected industries than conventional sentiment would suggest.

Some office markets (Boston, Philadelphia, Chicago and New Jersey) may be better positioned to weather the turbulence if goods and services from health-care organizations, life sciences companies and pharmacies increase or remain stable.

Other smaller markets with high concentrations of industries less adversely impacted by the COVID-19 outbreak include San Diego, Oakland and Long Island.

Figure 2: Major Markets by Percentage of 2018-2019 Office Leases in Industries Likely to See Higher or Stable Demand**

Turbulent 2020 Unfolds-fig2

Source: CBRE Research, March, 2020.
**Health care, life sciences and retail pharmacy companies.

COVID-19 Outbreak

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