Abstract

This paper examines the impact of the COVID-19 pandemic on commercial real estate prices. We construct a novel measure of real estate investment trusts’ (REITs’) exposure to the growth in COVID-19 cases at the asset level. We document a negative relationship between this geographically weighted case growth and risk-adjusted returns. However, there is substantial variation across property types: retail and hospitality REITs react the most negatively while health care and technology REITs react positively to the exposure of their portfolios to growth in COVID-19 cases. Portfolios tilted toward properties in population-dense areas increases the negative impact of COVID-19 on stock returns. After conditioning on the property type focus of the REIT, days since the beginning of the portfolio’s exposure to the outbreak, the weighted-average population density of the counties in which the REIT is invested, and the extent to which the REIT’s portfolio is concentrated by property type and geography, other firm characteristics have little effect on the negative stock price impact of the pandemic. We argue that the effects of COVID-19 that we observe in highly liquid stock markets are indicative of the effects occurring in private CRE markets.