How Has Commercial Property Been Affected By Covid-19?
This year’s global pandemic has been a huge humanitarian crisis for people across the globe. The effect that it has already had, and is likely to continue to have for months, if not years to come, is detrimental. The impact that Covid-19 has had on commercial real estate has been equally harmful. Let’s look at the damage that has been caused, how leaders are navigating the pandemic and also some of the more permanent changes that are likely to outlive Covid-19.
What is the Impact?
Commercial real estate has been hit hard as millions of people retreated from office spaces in order to follow government guidelines and work at home, causing the value to drop dramatically. Many of those companies that functioned well as a remote team are yet to return to office spaces in order to protect themselves from ongoing financial uncertainty. This, of course, puts commercial real estate owners in a very difficult position, as many companies have either failed to renew leases or are struggling to make lease payments. This is particularly an issue for office space providers such as WeWork who offer monthly rolling contracts, thus have little to no protection. Sales of commercial properties are unlikely to be successful, as investment in commercial real estate has reduced significantly, with global investment figures falling 29% to $321 billion in the first six months of 2020. Yet, some have discussed the benefits of commercial property auctions as an alternative to traditional commercial sales, as many are continuing to take place online. Those who are in the position to invest can access cheap property, while those who are struggling are offered a more viable pathway in order to sell unwanted assets. This is an alternative direction for those who are struggling to find a way out. In terms of construction of new commercial real estate, many providers have been unable to obtain permits and are facing long delays as a result. A combination of these things, along with many other factors, has put commercial real estate in trouble, to say the least!
How Are Leaders Navigating The Pandemic?
There have been various different responses to Covid-19 by the front runners of commercial real estate. A common reaction is that both public and private companies are trying to mitigate the effects of the pandemic for their staff and/or tenants while simultaneously making tough business decisions. While some have prioritized making their cash management more efficient and reassessing their capital expenditure decisions, others have focused on digitizing in order to cut costs wherever possible. Companies are continually attempting to strike a balance between preserving their capital and strengthening their competitive edge.
Changes That Will Outlive the Pandemic
Many changes that have been implemented in commercial real estate in the last few years, particularly in office spaces, are likely to be retracted. For example, offices have migrated towards large, open-plan office spaces that encourage movement and mingling. Shared common areas for break times are also common and are a large part of the modern work space which strongly focuses on a work-life balance. Both of which, of course, present issues in terms of transmitting the disease.
From a commerce point of view, consumers who have adjusted to largely shopping online may permanently change their habits and switch to online shops, bypassing local shops or boutiques. Customers were already moving away from physical shops and the pandemic has only accelerated that. The likelihood is that brands that have struggled through Covid-19 but looked positively towards life returning to normal may continue to struggle, meaning that it is possible that thousands of shopping units will be empty for the foreseeable future. This focus on e-commerce could also spike a demand for industrial property, an area potentially struggling as a result of the delayed permits as discussed earlier.
How to Move Forward
With the business world gradually coming back to life, people will have to adjust to the new normal, whatever that might mean. Whilst some companies might opt to encourage remote working just as much as being office based, others may go back to the office as soon as possible. It is likely many companies will sit somewhere in the middle of these two options, which of course will still influence the commercial real estate market as office based working is expected to have changed forever. If the demand for large office spaces is reduced, what will the impact be for the copious amounts of highrise offices all across the country? While most people got through the pandemic with a focus on things ‘returning to normal’, it is now widely accepted that our lives have evolved tremendously as a result of Covid-19. The commercial real estate industry is also going to have to evolve in order to regain the significant power it had pre-Covid.
Summary
This pandemic has been destructive to so many markets, the commercial real estate market being one of them. Many of the issues identified at the beginning of the pandemic have continued to devastate the industry and it seems that many of the changes that have been implemented are likely to have a long lasting effect.
We hope you found this blog post eon How Has Commercial Property Been Affected By COVID-19? informative. Be sure to check out our post on Impact of COVID-19 on Real Estate & Other Sectors of the Economy for more great information!
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