We examine how the COVID-19 pandemic and the shift to working from home (WFH) affected commercial real estate (CRE) prices in cities across the United States. We compare urban and suburban commercial property transactions before and after the onset of the pandemic. On average, urban prices drop by 8% in the post-period with prices in inner and outer ring suburban neighborhoods displaying no significant price change. The urban price drop is especially acute in transit-oriented cities (-13%) and cities where the ability to WFH is high (-17%). Urban price declines are observed for apartment, office, retail, and industrial building types. We observe a “flight from urban quality” with high-quality urban prices dropping 5% and high-quality suburban prices remaining stable. Complementing our price analysis, we observe a decline in suburban capitalization rates relative to urban rates in the post-period indicating investors expect rents to rise in suburban areas relative to urban areas in the near future. Lastly, we demonstrate that our findings are not driven by heterogeneous liquidity across neighborhood types and are robust to alternative neighborhood categorizations.
Working paper available here.