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Commercial Real Estate Sales in Chicago drop to a 10-year low in 2020

The Covid-19 pandemic, coupled with a deep recession and other factors in 2020, has caused the fewest number of commercial property sales in a decade.  Real estate investors bought and sold just under $11.5 billion of Chicago-area commercial real estate which is a 32% decrease from 2019 according to the data put forth by the research firm Real Capital Analytics (RCA).

This past year was the worst year in sales volume since 2010 when just $6 billion of real estate was bought and sold.

Commercial property sales were down 31% on a national level and the main culprit, other than the harmful effects of the pandemic, resulted from real estate investors who have had wildly divergent views on the fair market value of commercial properties.  Sellers are listing properties at prices a year or two years ago and buyers don’t want to take the risk of guessing how long a recovery will have to take place to get back to those market values dating to before the pandemic.

In the city, the apartment market which was booming in downtown Chicago prior to the pandemic was particularly hard-hit and plummeted 54% from 2019 with only $1.82 billion in transactions during 2020 according to RCA.  This 54% decrease was twice as high as the national average which fell 27%.  Investors do seem to be concerned that densely populated areas in the city have been considered less desirable during the pandemic.  Another key contributing factor to the apprehension of real estate investors or prospective buyers is the impending 2021 triennial reassessments of Cook County Assessor Fritz Kaegi.  Prospective buyers of apartment buildings are concerned and will be dissuaded from purchasing new buildings if Assessor Kaegi increases apartment buildings’ assessments in a similar fashion to the substantial assessment increases he has employed in the northern townships of Cook County in the 2019 triennial assessment and the south and southwest townships of Cook County in the 2020 triennial assessment.  Kaegi’s office increased commercial and industrial assessments which includes multi-family buildings by 77% in the northern townships of Cook County in the 2019 triennial reassessment year.  In the southern townships of Cook County, Assessor Kaegi increased assessments of apartment buildings by a median of about 80% in the 2020 triennial assessment year.

The hotel market was the hardest hit property type as sales volume decreased 66% and hit its lowest mark since 2009 due to canceled conventions and the frozen tourism industry in 2020.  Nationally, the national average sales volume of hotels decreased by 68 percent.  The retail sector was the next hardest hit property sector with transactions decreasing 38.4% from 2019 due to the pandemic and the increase of online shopping and growth of companies like Amazon.

Overall, uncertainty in the real estate market due to the pandemic and the unknown length of the economic recovery has caused the commercial sales volume to plummet significantly.  More likely than not, contractions in sales volume will continue in 2021, unless and until sellers and buyers adjust their expectations in a substantial manner and more is known about the associated real estate tax burden affecting properties subject to the Assessor’s reassessment of the City of Chicago occurring in 2021.