A First Look at the Impact of COVID-19 on Commercial Real Estate Prices: Asset-Level Evidence

Abstract

This is the first paper to examine how the COVID-19 shock transmitted from the asset markets to capital markets. Using a novel measure of the exposure of commercial real estate (CRE) portfolios to the increase in the number of COVID-19 cases (GeoCOVID), we find a one-standard-deviation increase in GeoCOVID on day t-1 is associated with a 0.24 to 0.93 percentage points decrease in abnormal returns over 1- to 3-day windows. There is substantial variation across property types. Local and state policy interventions helped to moderate the negative return impact of GeoCOVID. However, there is little evidence that reopenings affected the performance of CRE markets.

COVID-19’s impact on real estate markets: review and outlook

“…Contrastingly, hospitality and retail REITs are performing poorly. Hence, the results of Ling et al (2020) show that commercial real estate sectors are affected differently by the COVID-19 crisis. To better illustrate this different impact, Fig.…”

“…Adjusting for returns on the S&P 500 Index and the FTSE-NAREIT All Equity REITs Index, the authors find a decrease of − 0.24% and − 0.93% point in abnormal returns after a single point standard deviation increase in COVID-19 growth in a one-and three-day window, respectively. In the study of Ling et al (2020), REITs with portfolios focused on data center, cell towers, self-storages and warehouses produce positive abnormal returns in the early stages of the outbreak. Contrastingly, hospitality and retail REITs are performing poorly.…”

A Tale of Two Crises: The 2008 Mortgage Meltdown and the 2020 COVID-19 Crisis

“…An important tangible example of changes in relative valuation in the aftermath of COVID-19 is illustrated by real estate. For example, Ling, Wang, and Zhou (forthcoming) use the geographical structure of real estate investment trust holdings to show the negative response of daily stock returns to COVID-19 growth and that the sensitivity of this response is reduced by announcement of policy interventions to limit the virus’s spread. While immediate effects are associated with the ability of tenants to pay rent and utilize property effectively, long-term valuation challenges are also predicted for the post-pandemic period.…”

How Does COVID-19 Affect House Prices? A Cross-City Analysis

“…This article adds to the literatures studying the effect of COVID-19 on economics (Yue et al 2020), such as the effects on US stock markets (Mazur et al 2020;Baker et al 2020a; Thorbecke 2020), Italian real estate markets (Del Giudice et al 2020), US commercial real estate prices (Ling et al 2020), household spending (Baker et al 2020b;Loxton et al 2020) and Universities (Thatcher et al 2020;Wang et al 2020). It also relates to a broad strand of literatures studying how house prices respond to the shocks of income variability (Haurin and Gill 1987), interest rate changes (Harris 1989;Brueckner and Follain 1989), inflation expectations (Schwab 1982), health risks (Viscusi 1990), SARS (Wong 2008), and distressed market conditions (Shilling et al 1990;Mian and Sufi 2011;Campbell et al 2011).…”