Real estate industry outlook


Authored by RSM US LLP

Key takeaways from the summer 2020 Real Estate Industry Outlook

  • All real estate sectors will embrace touchless technologies to ensure the safety of staff and occupants.
  • Office spaces will dramatically reconfigure to allow more space per worker, while collaboration becomes the main driver of in-office activity.
  • Enhanced remote work experiences will facilitate home purchases farther away from the top-tier cities that house corporate headquarters.
  • Virtual experiences will become standard for buying and selling homes.
  • Beleaguered hotels will sharply alter their practices and common areas to ensure guest safety.
  • Many retail properties, already pressured by online commerce, will transform to other commercial uses.
  • Creative leasing arrangements will be more prevalent as landlords try to improve liquidity and cash flow.
  • Fundraising will remain depressed, with funds relying on existing investors for growth.
  • Due diligence will be hampered by the inability to have firsthand property experiences.
  • The construction sector will wring efficiencies from virtual tools such as 3-D modeling and site management platforms.

See full industry outlook report


Remote work, the near-halt of travel, continued migration to secondary cities and declining asset values are just some of the myriad trends facing the real estate industry in an unprecedented pandemic-driven environment. Across the commercial and residential landscape, digital transformation is accelerating as property owners, managers and developers look to touchless transactions, virtual platforms and other innovative technologies to minimize operational risk, lower costs and drive efficiencies in a competitive marketplace. Middle market companies on the forefront of these advances stand to do well under this new normal.

The next normal in office space will accordingly require more space per worker, and the main driver for in-office work time will be the need for face-to-face collaboration.


The new office

As COVID-19 spread across North America in March and stay-in-place orders mounted, millions of office workers found themselves compelled to work from home. By April, 63% of workers surveyed were working remotely to mitigate the spread of the virus, according to one Gallup Poll.

As employees headed home, business owners across the United States and Canada worried about how to manage a remote workforce: How would employees stay productive and focused? Would home broadband be able to handle the spike in daytime traffic? These concerns were soon put to rest as the pre-COVID-19 trend of digital transformation accelerated. The use of video conferencing and remote-access tools allowed employees to stay productive. Surprisingly, they appeared to work harder away from the office. According to an analysis of server activity by NordVPN, the average workday increased by three hours during the lockdown period of mid-March through the end of April. Broadband services, already primed for higher use by years of Netflix and other data-heavy streaming services, met the increased demand by boosting service, and they were ready for daytime action.

“It’s hard to envision a more difficult operating environment than what we are experiencing today, and I don’t even want to try to sugarcoat it.” - Ryan Marshall, CEO, PulteGroup Inc., April 23, 2020, earnings call

The stigma of remote working began to lift. Employers, led by tech giants Facebook, Twitter and Amazon, announced that they would allow workers to work remotely for the long term. This transition is possible due to the rise in technology platforms that enable sharing of ideas and workflow, which began with the popularization of email in early 90s, and has been building for the past 30 years. With employees able to choose to work remotely and companies able to reduce the fixed cost of office space, the traditional office will need to change.

The next normal in office space will accordingly require more space per worker, and the main driver for in-office work time will be the need for face-to-face collaboration . Individual “heads down” work will be performed in the comfort of home rather than in an isolated cubicle. Video conferencing setups in small team rooms will be more prevalent in the office to accommodate the hybrid home- and office-work model.

Safety precautions to mitigate the spread of disease will become standard, with thermal scanners in building lobbies, negative air pressure ventilation, ultraviolet lighting for cleaning and scannable QR codes on employee mobile devices likely to become standard. Much how 9/11 led to security measures in every office tower across the United States, the coronavirus will have a lasting impact on measures we now take to feel safe in the office.

Residential options

The coronavirus pandemic isn’t just changing the office environment, it’s also altering residential life, including where we live and how we purchase homes long after shelter-in-place edicts are lifted.

Before the coronavirus, millennial homebuyers were already starting to migrate to secondary cities in search of affordable housing. El Paso, Texas; Grand Rapids, Michigan; Madison, Wisconsin and Oklahoma City were among the locations listed as most popular for millennials to move and put down roots, according to a 2019 report from the National Association of Realtors. Most were seeing such moves as a trade-off: sacrificing future job opportunities for more affordable housing. Technology advancements that now facilitate better remote work experiences may provide these mobile millennials a chance to have both the dream home and the dream job.

Technology hubs such as Seattle, San Francisco and Boston have been attractive to millennials chasing tech jobs. But technology companies, as mentioned above, are now recognizing the burden of fixed costs that come with maintaining elaborate corporate campuses in top-tier cities, and are among the first to embrace a permanent shift to remote work. Meanwhile, bankers, brokers, accountants and lawyers are also debating whether to sustain their elaborate corporate offices.

If the options to work remotely are widely embraced, enabled by cloud services, videoconferencing and similar technologies, the movement toward urbanization over the past two decades may begin to reverse. A survey by Redfin, the real estate listing site, showed that more than 50% of people in major tech hubs, including Seattle and Boston, would move elsewhere if their companies adopted remote work policies. The majority said the desire to live somewhere less expensive was the No. 1 motivation. Who says you can’t have your cake and eat it too? Technology advancements, combined with the coronavirus-induced work-from-home experiment of 2020, could be just the antidote to the residential affordability challenges plaguing the country and, in particular, high-cost coastal cities.

Not only is technology changing where we choose to buy homes, but also how we purchase them. Before the pandemic, tech-savvy millennials were already more likely to shop for a home online, forcing realtors to adjust their selling practices. With realtors and homebuyers now compelled to meet socialdistancing measures, technology-enabled selling has accelerated. Virtual reality tours and 3D floor plans, once a novelty, are becoming a standard for sophisticated realtors. Appraisers are deploying drones to take exterior photos. The stacks of paperwork dispensed by realtors, banks and title companies that made mortgage applications and closings onerous affairs have been quashed, replaced by electronic signatures and e-filing. Homebuyers are readily embracing these conveniences.

While the homebuying process has become easier, the financial burdens and economic stresses that held millennials back from homeownership have become greater. The impact of the current economic downturn—the second recession during the millennials’ prime earning years—will likely prevent this generation from experiencing the prosperity enjoyed by their parents and grandparents. Unemployment has skyrocketed and wage growth has regressed, pushing their dreams of homeownership further away, and perhaps permanently out of sight. To further compound matters, some members of Generation Z are now part of the workforce; many in this cohort will be subject to the same plight of economic instability that is driving down homeownership rates.


As the human toll of the pandemic has mounted, so too, has the economic one; North America is coping with record-setting unemployment on par with the Great Depression of the 1930s, and companies are facing continued uncertainty about the severity of the virus, its duration and consequential impact on their businesses. In an effort to conserve cash and keep workforces healthy, many have limited nonessential business travel and told employees to work from home while state and local governments have asked citizens to comply with stay-at-home orders through the majority of the second quarter. Even as more states loosen quarantine restrictions, true lasting economic resurgence will only be guaranteed when the virus is either contained or appropriate therapies and vaccines are developed that allow consumers to feel safe fully participating in the recovery.


The hospitality industry is arguably the most negatively affected sector of the U.S. economy as a result of the pandemic. Since COVID-19’s onset in mid- March, travel-related job losses have accounted for 38% of total job losses and unemployment in the travel industry stands at 51%, more than double its peak in 1933 during the Great Depression. As a result of the pandemic, domestic travel spending next year is projected to decline by $519 billion, representing $1.2 trillion in total economic losses—a staggering nine times the hit after 9/11. The hospitality industry overall is being forced to significantly change its operational emphasis away from interconnected personal guest experiences to stopgap measures focused on the protection of guests and their peace of mind.

Segment data shows that in terms of performance, the industry’s budgetoriented economy lodging segment has been more insulated than midtier and upscale hotels, which are more dependent on group-leisure, business-leisure and fly-to destination-leisure travel. The economy segment has continued to cater to its customers, including those deemed essential workers such as construction professionals who must travel to job sites. Most inventory in this segment is located in suburban and small metro areas, not hard-hit urban, resort and airport-adjacent spots.


Seeking to lure consumers back to hotels and resorts, owners and operators will need to invest significant capital in existing and emerging technologies focused on touchless experiences that ensure health safety.

Guests should expect a movement away from face-to-face check-ins, dining reservations and concierge services to digital processes that encourage social distancing, including mobile apps, QR codes and touch screens throughout public spaces. Room service may be delivered in buffer zones and housekeeping services to be limited during guest stays. Hotels are already reallocating space in common areas such as large conference and meeting rooms, fitness rooms, clubs, bars and restaurants to ensure proper distancing. These moves are expected to drive revenue and help them bounce back more quickly.

Global hotel groups, including Hyatt, Marriott, Four Seasons and Hilton, have announced extensive safety measures—incorporating ultravioletemitting robots and electrostatic sprayers to sanitize surfaces, partnering with disinfectant makers like Lysol’s Reckitt Benckiser for brand reliability

and enlisting help from health care experts to design new safety guidelines. Meanwhile, the unintended consequences of extended property closings and the lack of water use could result in the increased concentration of the bacteria responsible for Legionnaires' disease, a potentially fatal respiratory condition. Hotels will need to test and disinfect water as needed to begin normal operations.

In an effort to create cleanliness protocols that last long after the initial pandemic response, hotels will invest in available technology for building and space management to ensure better ventilation, air and water quality, to monitor humidity levels and to control the number of people in common areas to prevent overdensification.


Property owners across the commercial real estate spectrum have tried to strengthen their cash positions during the pandemic. Many have demanded rent relief and explored creative ways to terminate or suspend their leases. The most acute pain has been felt by retail property owners whose tenants have been forced to stay closed to honor pandemic-induced social-distancing requirements. With many tenants refusing to pay rent while their stores were shuttered, landlords have been negotiating workarounds. But their own bills are piling up; default letters to tenants are accumulating as landlords seek to preserve their legal rights under executed lease agreements. In the month of April alone, retail mall landlords received just a quarter of expected rent payments; according to CoStar, an estimated $7.4 billion went unpaid, a staggering 45% of what is owed.

Adding insult to injury for retailers, there is no guarantee that American shoppers will pick up where they left off once the novel coronavirus is contained. If reservations on the online platform Open Table are any indication, consumers are hesitant to resume life as normal. Results from the shutdown period beginning mid-March through the week of May 28 show diner activity down more than 80% in the United States and Canada year-over-year.

Retailers were struggling with systemic changes even before the onset of the pandemic, as bankruptcies and store closures were exacerbated by changing consumer preferences such as increased online purchasing. Landlords, realizing they have a vested interest in their tenants’ long-term survival, have provided relief through rent abatement periods, interest-free repayment options, rent waivers for fixed time periods, and flexible rent payments tied to retailers’ sales performance.


Office landlords have fared a bit better, having been able to collect most of their rent during the pandemic, but there is evidence that with each passing month of rising unemployment, economic uncertainty, and more recently, civil unrest—particularly in urban commercial districts—an increasing number of tenants are withholding rent payments. This will have a cascading impact on the financial markets, making landlords’ mortgage payments more challenging. Even so, institutional investors such as pension managers continue to invest in CorePlus office markets due to their stable rents and cash flows. If tenants stop paying rent, pension payments may be curtailed. Many of the largest pension fund investors in real estate are teachers unions and state and municipal workers, including firefighters and police. The unintended consequences of delinquent commercial rent payments could reverberate through the economy.

Batter up! A commercial real estate capital markets preview

Throughout most of the longest period of economic expansion in U.S. history dating back to 1854, commercial real estate investors commonly asked, “What inning are we in?” The cycle of growth continued to expand to the point where many professionals felt the market was in extra innings, with little insight on when it would flip. The COVID-19 pandemic brought the economy into a recession, and we are now in the first inning of a new cycle.

Before 2020, the fundraising landscape was already starting to show areas of concern. Even as capital in 2019 reached a record $103 billion, the number of players had shrunk to 235 funds, the fewest in seven years. Money was tending to gravitate toward the largest real estate fund managers, leaving middle market organizations fighting to meet their targets. The advent of the pandemic did not, of course, ease this struggle. Executives are unable to hold live, face-to-face meet-and-greets to develop personal connections with potential investors. Funds will be required to rely on existing investors from previous funds to meet new capital demands. Fund managers should continue to expect competition in fundraising. There will be an influx of new real estate funds hitting the market as managers look to take advantage of opportunistic valuations and not be bogged down by pre-COVID-19 assets in the portfolio. With overall uncertainty surrounding the economy, many investors will stay in a wait-and-see mode to understand and quantify the market impacts before doling out additional capital.


Companies not actively fundraising have been waiting for pricing to fall; they are now in prime position for acquisitions, with more than $195 billion of dry powder in commercial real estate funds. The credit market has been tight. During the first quarter of 2020, commercial mortgage-backed securities issuance volume declined by a third from the prior quarter. Even in the current low-interest-rate environment, many lenders have increased loan-to-value minimums for conservative measures to offset rising forbearance of other loan investments. In short, cash continues to be king, and all-cash buyers will be first to take advantage of the distressed market.

Overall transaction activity will lag for some time, resulting in few comparables in the market to set pricing. Due diligence will be problematic, hampered by the difficulties viewing properties amid social distancing requirements, closures and struggles to accurately project future rent payments. It’s important to keep in mind that this recession differs from the one ended in 2008. It will be vital for real estate professionals to properly factor in the risk profile of potential investments, including the geographic and sector considerations of assets.


This downturn is pandemic-driven, and as such, capital will be much more available when the transaction market opens up.

As the economic cycle restarts, both core and opportunistic strategies will be able to ramp up quickly. Core assets will be viewed highly during a time when rent payments are unstable in certain sectors. Triple-net leases, especially those for tenants in essential services, will continue as a beacon of success in real estate. Opportunistic strategists will be able to acquire distressed properties at bargain prices, but they must be ready to reposition them as the economy recovers. Value-added-based strategies will face the greatest difficulty. Tenant turnover in the apartments sector, for example, will stall as many residents choose to delay moving from their current domiciles.

Improvements to existing units will be delayed amid social distancing strictures that forbid work inside units, as well as an overall slowdown in construction.

Geography remains a core factor in real estate, and will gain importance during an uneven recovery across the country. Tourism was hit particularly hard in the first half of 2020, underscored by gas prices that held below $2 per gallon. Cities reliant on tourism such as Las Vegas and Houston may not see properties regain their 2019 values for several years. By contrast, Seattle and other technology hubs should recover quickly and continue to attract capital. Alarmist headlines warning that the coronavirus will drive urban populations to the suburbs are likely proven to be untrue; people still yearn for a sense of community and social interaction. While there may be some suburban migration, especially in pricey markets like New York City, more affordable metro areas like Austin, Texas and Nashville, Tennesee will see continued population growth; as previously indicated, they may look even more desirable to the new ranks of permanent remote workers.

The steady rise of e-commerce has allowed the industrial market to remain strong, as distribution centers for Amazon and its rivals remain in high demand. Last-mile facilities will continue to draw attention, even at comparably higher prices. The prominent use of Wi-Fi networks at home and the continued focus on 5G, data centers will remain at the forefront of real estate’s next normal. Multifamily properties will also experience quicker recovery. Rent payments have remained steady throughout the economic shutdown. People still need shelter and they value it immensely. If nothing else, the coronavirus has slowed construction for housing that continues to be in short supply. While rents will be depressed in the short term, they should recover quickly in most geographic markets.

Office and senior housing present a mixed bag, having each received negative attention during the pandemic. Despite the reported increased productivity of employees working from home, dedicated office space remains essential. People still strive for interaction with their peers, and organizations will need to build loyalty from staff. As noted earlier in this report, office space will adapt and continue to be a core fixture to help companies meet the need for face-toface interaction among employees. Tenant demand will likely push lease terms down as tenants look for increased flexibility given the uncertainty related to the future of work long term; many companies have seen sustainable success in a working from home environment. Desk hoteling will likely diminish amid safety risks, but coworking spaces will continue to gain in popularity as another option for tenants in the office market.

Along with the negative media attention of recent months, senior housing has had to battle oversupply. Advances in telemedicine and related technology are allowing baby boomers to age in place longer, depressing demand, especially in independent living facilities. The needs-based subsectors—assisted living and skilled nursing facilities—should see quicker returns. The elderly will not have the same level of flexibility to delay moving into this type of housing compared to independent living.

Lastly, retail and hotel properties will face the longest recovery. The retail market had been a victim of oversupply since the 1980s, as many Class B and C retail properties went through closures and repositioning. Movie theaters—popular installments in malls—will face significant struggles to reopen amid social distancing constraints and continued demand for digital entertainment from Netflix, Amazon Prime and other providers, underscored by the success of direct-to-consumer studio releases. Retail assets will continue to be repositioned, likely for mixed use.


The blurring of the work and home life experience will continue to draw those looking for convenience and proximity to leisure offerings.

Meanwhile, the pandemic-stricken hospitality sector saw guest occupancy fall to single digits in some key markets, while airlines tracked daily declines of more than 2 million travelers, compared to the prior year. On the upside, extended-stay residences have shown some resiliency in the crisis; luxury brand hotels, however, will require a long time to rebound. This will likely lead to consolidation in the space for opportunistic investors.

Most hospitality CEOs do not expect hotel revenue per available room, or RevPAR, to return to pre-crisis levels until 2023. As such, valuation of reeling hotel properties has become a difficult, if not impossible, venture for both buyers and sellers attempting to predict occupancy levels for both leisure and business travelers in the coming years. The hotel deals market has effectively become frozen, with sales volumes falling to unprecedented levels. In April, for example, it dropped to $42 million, from more than $1 billion in March and about $1.75 billion for February. The speed in which the industry flexed and became illiquid is staggering, compared to the previous financial crisis: the Great Recession’s rock bottom during April 2009 saw hospitality volume decline to $127 million following months of reduced trading. Buyers and sellers have varying expectations of value; and until there are concessions, or realistic measuring sticks, the market will remain frozen.

Interestingly, U.S. hotel supply is growing at a record pace. In March, a record total of rooms under construction surpassed 215,000, but much like the aftermath of the Great Recession, when construction peaked at 211,000 rooms, the pace is expected to slowly decrease as capital is retained to support failing operations or maintain existing properties. The number of U.S. hotel projects moving from the planning stage to a deferred status spiked to 21 projects in March and an additional 17 projects in April, from just two projects in February. There have been fewer cancellations, with a high during that threemonth period of seven in March.

Construction enters the technology era

As the new cycle of real estate begins, construction enters an era of new technology. As mentioned earlier, COVID-19’s impacts will result in accelerated tech advances—much of them designed to assist with safety protocols—being implemented in existing commercial buildings. As these technological improvements change the way real estate is used, construction companies, as well, are more readily embracing new techniques to implement the way construction projects are developed and managed. The use of prefabrication and modular building, building information modeling or BIM, and virtual construction methods are being deployed to design, build and monitor projects.

Prefabrication, along with modular construction and virtual construction management tools, which had been gaining popularity since the end of the most recent economic downturn in 2008, will likely see accelerated growth in the new normal under the pandemic. A February 2020 survey from Dodge & Data Analytics shows that construction executives expect double-digit increases in both single-trade and multitrade prefabrication assemblies and permanent modular construction over the next three years. The most significant benefits achieved from these construction techniques are improved project schedule performance, decreased construction costs and better construction quality, the same survey reported.

Prefabrication and modular construction are not just beneficial to project owners, but also to site workers. The ability for contractors to move work off construction sites and into factories helps to control many would-be worker hazards. According to Occupational Safety and Health Administration, of the 4,779 worker fatalities in private industry in 2018, 21.1% were in construction. The construction industry’s four leading causes of death, accounting for half of incidents, were falls, being struck by an object, electrocution and/or accidents where a worker’s body part is caught, crushed or squeezed between two or more objects. Clearly removing workers from construction sites, and placing them in more controlled settings, can reduce the risk of tragic injuries to the workforce.

Building information modeling, virtual reality, the use of drones and related digital technology are allowing construction companies to improve efficiencies and job safety, while reducing costs and errors resulting from project unknowns. Consider the use of Boston Dynamic’s autonomous dog-shaped robot, Spot. In a recent test, one construction company found it could save 20 labor hours in one week by letting Spot take pictures of the job site after work hours. Such reductions factored across multiple job sites and weeks can result in significant efficiency gains.

BIM relies on an intelligent three-dimensional process to give architects, engineers and construction professionals virtual insight into their projects. While traditional modeling typically calls for a handoff after each subsequent phase of development—design, engineering, construction, etc.—BIM’s real-time development lets the owner and other stakeholders see how the future project will look, avoiding late changes that typically result in cost overruns and delays.

Demand for most constructions in the private, nongovernment realm is based on identifying opportunities for transformations to residential and commercial real estate. Before the pandemic, many construction companies saw robust backlogs; going forward, opportunities will be largely on the occupant safety protocols and other tenant-driven changes that we identified above. The evolution of real estate is accelerating, and construction companies need to prepare for significant changes. Those who invest in technological tools will be best prepared to hit the home runs in the next cycle of commercial real estate.

It is important to realize that none of the aforementioned trends can be painted with a broad brush. Each property carries its own distinct attributes and characteristics influenced by geography, subsector and a host of other factors. Proper access to data will allow for better understanding of market dynamics and more effective underwriting of potential assets that will allow buyers to take advantage of a lower-priced market.