commercial real estate and the covid 19 recovery

Commercial Real Estate and the COVID 19 Recovery

22 Jul, 2020

From the finance industry to the real estate industry, the consequences of COVID-19 have been unpredictable at best. While restaurants, bars, hotels, and other service-related industries have floundered, construction in many areas has grown. COVID-19 is rapidly becoming the “new normal”—for the first few months, many companies continued with their existing initiatives, waiting for the damage to pass. Now that it appears the COVID-19 recovery could last years, the forecast for commercial real estate may very well be altered.

The Real Estate Industry is Experiencing an Unprecedented, Global Shock

In general, the real estate industry tends to be fairly stalwart when it comes to massive, global events. Apart from the real estate boom-and-bust (which was centered, of course, on the housing market), the real estate industry as a whole tends to experience short-term, rather than long-term, effects. Unfortunately, COVID-19 is presenting the real estate industry with unprecedented changes, as it is impacting all businesses across the globe. We can see from these stats by Deloitte that the COVID-19 impact is likely to be far greater than the impact of prior pandemics.

There are multiple issues at hand for the commercial real estate industry:

  1. Businesses are shutting down or finding themselves unable to pay their mortgages and rent. New companies are not opening; they are delaying their opening until after the pandemic.
  2. Investor faith is down. During an uncertain financial time, investors would rather save their money than try to spend it, especially on commercial ventures.
  3. There are higher operational costs. Commercial spaces now need to invest more in maintenance, sanitization, and general health initiatives.
  4. Work from home is booming. As companies start to question whether they need offices, they may start to move into smaller offices.
  5. In the past, pandemics affected the real estate market fairly slowly. This time, the pandemic affected the real estate market almost immediately. But that doesn’t mean that the real estate market isn’t strong or that it cannot bounce back. The commercial real estate sector was already in good condition before the pandemic began, and will likely improve with time.

The Overall Effect of the Pandemic on the Commercial Real Estate Industry

Many developers have halted or slowed their developments. Even companies that wanted to move forward with their operations were often unable to, because the supply chain was disrupted. Many proptechs were devastated, such as Airbnb, which is just now starting to recover. While the CARES act provided some relief, the major issue is simply that the economy is currently “on hold.” Projects are on hold, and it remains to be seen which businesses are going to fold, and what the ultimate impact will be on commercial real estate and the covid recovery as a whole.

COVID-19 is going to make some adjustments to the way that people live and work. Many jobs are not coming back and many businesses are likely to fail. Employees are pushing for greater WFH facilities now that they know that they can work from home. And that means that many in the commercial real estate industry are going to need to re-think the way that commercial spaces are used during covid 19 recovery.

  • In retail and restaurants, curbside services are becoming popular, and many people are not wanting to maintain their large dining rooms or open business centers. Whether this will become a social norm remains to be seen, but some of this was already happening — the grocery store market, for instance, was transitioning to delivery.
  • Offices may see more private office spaces, rather than the large, open office spaces. Companies are still signing leases and remaining active, but with some caution. It’s likely that many commercial spaces will need to be fitted with things like touch-less sensors and sanitizing stations. Industrial real estate may see the fewest changes, but it depends on region. In some areas, industrial real estate has seen virtually no change, and has remained extremely resilient.

    Moving Forward During COVID 19 Recovery

Overall, it does appear that things are moving forward, simply slower. But the way that people live and work is likely to change permanently, and that is going to require additional investment in commercial spaces. The commercial real estate market is going to take time to recover, and it’s going to be particularly vulnerable to changes that occur with the pandemic. If the pandemic gets worse, or persists for (as some fear) years, commercial real estate is undoubtedly going to be impacted—but not as harshly as it may seem. Business continues to persist, simply at lower rates, and businesses are working to find new ways to use their spaces without shutting down entirely.

One thing is for sure, the real estate industry as a whole, and the professionals that work in it, are extremely creative, resilient, strategic, and determined. To learn more about how your colleagues are bouncing back, click here. To find out how Velocity Title is meeting the needs of its clients during this pandemic, click here.

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