Real estate deals insights: Midyear 2020

Start adding items to your reading lists:
Save this item to:
This item has been saved to your reading list.

Real estate deals dropped in response to the COVID-19 pandemic but could recover by the fourth quarter as the industry meets demand for rapid technological change and greater workforce flexibility.

Uncertainty in underwriting, financial markets and the broader economy dampened M&A across real estate during the first half of 2020. Price discovery was elusive in many sectors. However, investors holdample dry powder, and changes in how we live and work could lead to growth in this asset class. For now, demand for many types of real estate remains strong, driven by growth in e-commerce, digitization of business, and the move by millennials to mid-size cities. We expect dealmaking to gradually gain strength, assuming the economy revives during the second half.


Playback of this video is not currently available

“We believe that today we are experiencing the great digital acceleration of business models that changes many use cases for real estate. Companies across sectors are accelerating their adoption of the cloud, rapidly moving more online from offline, and digitizing business processes. These accelerating trends are propelling market activity in certain real estate sectors that were once niche and now should be viewed as mainstream, and for the traditional sectors are causing investors to re-think use cases and innovate to capture hidden value for well located real estate.”

Tim Bodner, US Real Estate Deals Leader, PwC

Trends and highlights


Total deal value and volume

The total value and volume of real estate deals plunged during 1H 2020, leading to a renewed focus on opportunistic strategies and spurring further interest in once niche sectors. The industry as a whole saw its weakest performance in at least five years. Perhaps this was expected for retail and hospitality (down 53% and 77% respectively, over 2H19), given stay-at-home orders. But COVID-19 also undercut deal value for apartments and offices too, each roughly half as active as the previous six months. The industrial sector bucked the trend: 46% below 2H19’s peak, but slightly above the average for other recent six month periods.

Less price transparency

Fewer transactions means less visibility into pricing, both for yield and price per unit of measure. Public and private sector benchmarks haven’t helped: the MSCI US Reit index is up from its low in March, but still below its trailing 12 month average. Meanwhile, the NCREIF ODCE Index was roughly flat in 1Q20 vs year-end 2019. This dynamic has been observed in prior cycles, leaving market participants to determine whether the public markets may be too draconian while also questioning if private values may be slower to adjust. Given the gap between public and private sector indices, price discovery may continue to be elusive in the near term, but could become more clear in the second-half of the year.

Tight credit

The uncertainty caused by COVID-19 prompted a pullback in financing, slowing dealmaking and complicating price discovery. Many lenders set base-rate floors or increased mortgage spreads, offsetting the benefit of a reduction in the Federal Reserve’s benchmark rate to a record low. Some participants have increased capitalization rates and discount rates between 25 and 100 basis points, especially for retail and hospitality properties, but without more transaction data, there is some speculation involved. While risk premiums are up, some investors expect that fiscal stimulus by way of a renewed period of low benchmark rates could potentially drive further cap rate compression, at least in some sectors.

Emerging opportunities

Deal value and volume will almost certainly recover — if only due to investors seeking distressed opportunities in the short term with longer-term recovery driven by less uncertainty surrounding future trends. CMBS loan delinquencies more than doubled in June, per Fitch Ratings, but the severity varies: hotel and retail lead the pack (11.49% and 7.86%, respectively), but industrial and multifamily are both below 1.0%. As loans mature grace periods expire, and the overhang from government aid is reduced there will be opportunities for providers of capital to be a solution. And, with lots of dry powder and continued investor interest in commercial real estate, deal activity will return.


Acceleration of trends

The first half of 2020 has changed many aspects of our daily lives and the way companies do business; however, when it comes to real estate, we view these changes as an acceleration of already present trends, rather than a wholesale change in direction.

The rise of “18-hour” cities

In our Emerging Trends in Real Estate reports, we’ve noted the growing popularity of locations that provide urban-core amenities (access to shopping and entertainment, walkable neighborhoods, etc.) while retaining the traditional benefits of a suburban lifestyle. The current environment could lead even more family-forming millennials to suburbs or smaller metro areas which tend to be less reliant on mass transit. This migration could help homebuilders, and it could boost the single family rental sector which offers affordable housing alternatives to a broader group of households. At the same time, the continuing desire for city-like amenities will further advance the recent rise of suburban mixed-use development and urbanization of mid-sized cities and their surrounding areas.


This year’s events have only increased the pace and widespread adoption of technology innovation. The effects of e-commerce on the retail sector, for example, have been with us for a while, and this is likely to increase. E-commerce continues to grow as a percentage of retail sales, from 10.5% in 1Q19 to 11.8% in 1Q20. As the move to online spending grows, some assets may pivot toward “Buy Online Pick Up in Store,” by repositioning themselves as a form of the highly-sought after last-mile logistics property — and an additional touchpoint between the brand and the customer. Similarly, the growing popularity of digital healthcare solutions could change the footprint and feel of traditional healthcare facilities and medical office properties. While no real estate sub-sector will become obsolete overnight, a number of asset types seem more likely to evolve rapidly as a result of recent events.

Sub-sector outlook

The impact of COVID-19 will vary across real estate sub-sectors as the year continues, driving growth in some (towers, data centers, logistics), but others will need to innovate to adapt to this economic environment.

Towers/data centers: We expect more demand here, with more working from home, more adoption of cloud technology, and build outs of 5G networks.

Logistics: Growth in e-commerce will increase demand for logistics assets, especially those catering to the last-mile.

Retail: Some properties will likely become more like last-mile fulfillment centers, or logistics space with curbside pick-up. Look for further shrinkage in the count and size of brick and mortar stores, with more conversion of assets to fulfill a different and innovative use case.

Senior Living: For now, we expect lower investment due to COVID-19 risks. But long-term demand for smarter, safer senior housing communities should remain steady, as the number of US citizens over 65 continues to climb in coming decades.

Office: Most companies won’t make drastic short term decisions with how they use space. Technology may make it easier to make office space more accommodative for the times than some expect. While remote work will grow in popularity, most companies will still need some physical office space. The sub-sector will have to become more agile by offering flexibility and more unique experiences.

Residential: Look for growing demand for amenity-rich apartments and units that allow working from home. Single family rentals could be the long-term winner, as families look for flexibility and avoid shared living spaces. 

Lodging & gaming: Reduced travel will likely continue to curb demand for lodging in the near-term. Over time the severity of the reduction will decline as individuals continue their quest for satisfying experiences and differentiated social interactions.

Real estate deals outlook

We see several accelerating trends in how people and businesses make real estate decisions: desires for more flexibility, less density, and better digital infrastructure. These trends provide guideposts for both real estate investors and operators:


  • For now, we’ll likely see people and businesses seek flexibility before making long term space-use and investment decisions. People may prefer renting to buying, and businesses could opt for more space-on-demand and co-working arrangements. We expect firms to pursue more sale-leaseback opportunities as a strategy to monetize their real estate portfolios, particularly in the retail, hospitality, and healthcare sectors. Investors may prefer different investment structures to access different parts of the capital stack, mitigate investment risks, and maximize both liquidity and financial flexibility. We expect to see more in minority and preferred equity investments, and different forms of “rescue financing” that give investors additional diversification.


  • We anticipate a convergence of trends for individuals looking to les s dense environments. Single family rentals are expected to be a great balance of both financial and space needs. We also expect to see more focus on secondary markets and 18 hour cities. In fact, all sectors are grappling with how to adapt their space use to social distancing; crowded elevators have become less appealing than ever.

Digital infrastructure:

  • We continue to see investors continue to look favorably on best in class logistics facilities that can support increased e-commerce and last mile needs. Despite pressure on traditional brick and mortar stores, leading retailers could succeed by reimagining their role and the experience they provide in line with consumers’ digital preferences. In the back office, we look for continued demand for data centers and towers to support work from home and the shift to 5G networking.

While many real estate investors are on the sidelines, they still have ample capital to deploy. We expect to see third quarter activity roughly consistent with 1H20, but the industry could rebound by 4Q20 as valuations stabilize and economic and political uncertainties are resolved. Over the long term, real estate can help drive fundamental changes across all industries. By embracing flexibility, ESG (Environmental, Social, and Governance) progress, and fostering innovation, the industry can lead the charge that other industries will follow.

About the data

The information presented in this report is an analysis of transactions in the real estate industry where the target company (or asset), the target ultimate parent company, the acquiring company, or the acquiring ultimate parent company was located in the United States of America. We have based our findings on data provided by industry-recognized sources. Transaction, capital-raising, yield and property fundamental data (as applicable) was sourced from Real Capital Analytics, NAREIT, NCREIF, S&P Dow Jones Indices, PwC Real Estate Investor Survey ®, and Emerging Trends in Real Estate ®: US and Canada: 2020. Private equity real estate data was sourced from Preqin.

Transactions are based on the closing date, unless otherwise specified herein. Transaction volume is based on independent reports of properties and portfolios $2.5 million and greater. Data classified as retail relates to strip shopping centers (neighborhood and community), with the exception of transaction volume which includes all retail sub-sectors. Certain data is based on preliminary activity reported for Q2 2020. Percentages and values are rounded to the nearest whole number which may result in minor differences when summing totals. Information related to previous periods is updated periodically based on new data collected by Real Capital Analytics for deals closed during previous periods but not reflected in previous data sets.

Contact us

Tim Bodner

Tim Bodner

Real Estate Deals Leader, PwC US

Andrew Alperstein

Andrew Alperstein

Real Estate Acquisitions Leader, PwC US

Steven Kennedy

Steven Kennedy

Deals Partner, PwC US

Follow us

Required fields are marked with an asterisk(*)

By submitting your email address, you acknowledge that you have read the Privacy Statement and that you consent to our processing data in accordance with the Privacy Statement (including international transfers). If you change your mind at any time about wishing to receive the information from us, you can send us an email message using the Contact Us page.