Urban Commercial REITs in the Post-Pandemic Era: Navigating Structural Shifts in Office and Tourism Demand

The post-pandemic real estate landscape has been marked by profound structural shifts, reshaping demand dynamics for urban commercial and tourism-linked assets. While the sector has shown resilience, the interplay of remote work trends, evolving consumer behavior, and macroeconomic headwinds has created a fragmented recovery. This analysis examines the performance of urban commercial REITs and tourism-linked assets, drawing on city-level case studies and sector-specific data to highlight the challenges and opportunities for investors.

Urban Commercial REITs: A Mixed Recovery Amid Macroeconomic Headwinds

Urban commercial REITs have navigated a complex post-pandemic environment, with 2023 marking a slowdown in growth compared to the robust performance of 2022. High interest rates, inflation, and recession risks have constrained capital flows, yet fundamentals remain resilient. Portfolio managers emphasize geographic diversification as a key strategy, with REITs rebalancing portfolios across urban and suburban markets to mitigate pandemic-driven shifts in population and work patterns. For instance, multifamily REITs have leveraged limited new supply in certain markets to maintain pricing power, driven by job growth and income levels.

However, the decline in commercial real estate values in major urban hubs like New York and San Francisco underscores the sector's vulnerabilities. A 2021 study projected a 25% to 43% drop in commercial real estate values in these cities, attributed to reduced employment in key sectors and elevated work-from-home (WFH) adoption. Manhattan office building values saw two-thirds of their decline linked to reduced occupancy due to WFH trends. By 2025, commercial real estate investment activity is expected to grow by 10% to $437 billion, but this remains 18% below pre-pandemic averages from 2015–2019.

Structural Shifts in Office Demand: Hybrid Work and Bifurcated Markets

The office sector has experienced a structural transformation, with remote and hybrid work models persistently altering demand. Initially, the pandemic led to a 160 million square foot reduction in office demand since Q1 2019. While stabilization emerged by 2021-marked by a 13% increase in average office lease sizes in major markets-the recovery has been uneven. Europe and Asia-Pacific have outpaced the Americas in office utilization rates.

The U.S. office market remains bifurcated, with prime locations in Tier 1 and gateway metros seeing moderate leasing activity, while non-prime areas struggle with high vacancy rates. Companies are reimagining real estate strategies to prioritize employee experience and operational agility, favoring high-performance spaces with ESG and wellness certifications. This shift reflects a long-term transformation where flexibility and quality of space outweigh traditional cost-focused models.

Tourism-Linked REITs: A Tale of Two Recoveries

Tourism-linked REITs, particularly in hospitality and retail, faced severe early-pandemic declines but have since shown signs of normalization. By 2025, international tourism had rebounded to significant levels, though challenges persist. For example, Las Vegas and Miami-cities heavily reliant on tourism-experienced sharp declines in 2020. Las Vegas saw a 55% drop in visitor volume and a 52.2% decline in visitor spending, while Miami's recovery has been uneven, with RevPAR growth lagging in certain segments.

The lodging/resorts REIT sector, however, demonstrated a strong rebound. After a 86% decline in 2020, RevPAR for U.S. lodging/resorts REITs surged by 262% in 2021 and 36% in 2022. By February 2023, RevPAR reached $95.32, with the luxury segment surpassing pre-pandemic levels by 17.4%. Yet, by August 2025, only 13 of the top 25 U.S. hotel markets showed RevPAR growth, signaling a fragmented recovery. Tourism-linked REITs must also adapt to evolving travel behavior, such as a shift toward domestic travel, private accommodations, and budget-conscious leisure trips. These trends favor properties in suburban and secondary markets but pose challenges for urban CBD-focused assets.

Conclusion: Strategic Adaptation in a Fragmented Market

The post-pandemic real estate market is defined by structural shifts that demand strategic adaptation. Urban commercial REITs must balance macroeconomic headwinds with geographic diversification and portfolio rebalancing, while office REITs need to embrace hybrid work models and prioritize high-performance spaces. Tourism-linked assets, though showing resilience, face uneven recovery trajectories and evolving consumer preferences. For investors, the key lies in identifying sectors and geographies that align with long-term demand drivers-such as urban retail's constrained supply and the hospitality sector's focus on luxury and full-service offerings-while mitigating risks in overexposed markets.