Half of U.S. hotel rooms are empty most nights, malls struggle to survive, and office buildings are still largely unused.
Commercial real estate values, which slumped during the economic shutdown, seem, however, to have stabilized, and, in some cases, have begun to rise again.
Market prices for the properties fell only 11 percent last year, according to data firm Green Street, compared to 37 percent during the Great Recession. Prices already have risen 7 percent since last July; after the 2008 crash, commercial real estate prices took years to recover. Also, foreclosures over the past 14 months have been relatively few.
As a result, pension funds and private equity firms are buying again, in some cases paying record prices.
In San Francisco, where office vacancies are the greatest in the U.S., Dropbox put a substantial portion of its headquarters up for lease; but private equity firm KKR bought the building in March for $1.1 billion, the highest price paid for an office block in the city in more than a decade, the Wall Street Journal reported.
Also, many upper-middle-class and wealthy workers remained employed during the shutdown, giving them income with fewer ways to spend it. More money went into stock and bond markets, pushing prices up and making commercial real estate seem cheap by comparison, the Journal noted.
That gave investment funds focused on commercial real estate $356 billion in cash last month to work with, according to data firm Prequin.
Also, commercial property can be a hedge against the looming threat of longer-term inflation, especially buildings that have long-term leases in place and allow rents to rise with inflation.
Twenty-nine percent of large investment funds want to allot more money to commercial real estate, according to a recent survey by Cornell University and Hodes Weill & Associates; only 5 percent of respondents said they wanted to reduce their exposure.
In addition, property owners face the new permanence of online shopping and the slow return of business travelers to hotels, which hotels and airlines say is not expected to resume in any volume until the third quarter of this year at the earliest. 
Much of the property market’s recent strength lies in warehouses, which have escalated 25 percent in value during the past 12 months, the WSJ reported.
TREND FORECAST: The market’s buoyancy is due in part to banks’ willingness to go easy on owners who are delinquent on their mortgage payments. But when banks’ formal mortgage deferral programs end,  foreclosures will rise. 
In addition, with more people working from home, we maintain our forecast for a long trend of a weakening commercial real estate sector. Confirming what we had forecast over a year ago, according to a recent study by Fitch Ratings, if companies surrender 10 percent of their office space as workers remain at home permanently, the value of office buildings could plummet as much as 40 percent.
Also, the commercial real estate market still faces the end of government largesse: the U.S. Federal Reserve’s bond-buying spree will taper off at some point, and interest rates will rise. When interest rates rise, the commercial real estate sector will sharply decline.

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