5 Impacts of COVID-19 on Commercial Real Estate

  • October 5, 2021
  • admin

COVID-19 has hit businesses globally, and the commercial rentalproperty market has not been spared. There are significant disruptions likely in the short and medium term. The work-from-home concept has become a norm and is just one of the few trends that companies are adapting. 

It is critical for a commercial real estate agent to find opportunities in this crisis through innovations to survive and thrive. Here are five ways in which COVID-19 has been a game-changer for the commercial real estate segment: 

Difficulties in Projections for the Short and Long Term

With companies wanting to cut down on space, office rental properties need more flexible leasing options. We need to offer subleasing options and be prepared to renegotiate leases. Leases will have clauses for early termination or expansion so that companies can take a call based on market demand. 

In a hybrid working model, half the employees will be coming to the office, and the other half working from home. Does it mean demand for office space will fall? No, on the contrary, it will go up. Only the way it is utilized will be different, and single office spaces may serve multiple purposes. We could have zoom meetings, conferences, quiet spaces in one room going on simultaneously. 

Space Optimization

The good news is demand for commercial real estate for lease is heading north. The reason is simple. Companies need the best talent to succeed and to attract such resources it needs state-of-the-art workplaces. Work from home will co-exist with work at the office and will not reduce demand for the latter. 

The change we will see is lower office density or less workforce but the same workspace. If previously an employee was allotted 70-80 sqft, this will go up to 100 sqft. It is to ensure social distancing norms are maintained. 

Employee wellbeing will be a priority, and we can expect captive gyms inside the office instead of shared areas that expose employees to the risk of infection.  

Decrease in Office Supply and Demand

The economic slowdown has resulted in lower demand, and the lack of supply has led the corporate world to rethink its commercial property investment. The pandemic could have a severe or moderate effect on demand for commercial office spaces depending on how long it lasts.

Commercial real estate demand has dipped sharply in the first few months of the pandemic. We are not likely to see a fresh supply since construction activities have come to a standstill. Leasing volumes will be far lower than 2019 levels. 

The year 2019 saw a surge in demand for office spaces in prime locations. Demand for quality human resources is likely to be strong, which will help boost office space demand. 

Increase in Investment in Safety-First Amenities

We need commercial real estate for lease to be more COVID-19 compliant and provide premium features. Even though most employees have had their mandatory dose of vaccinations, they will not work in an office that has not invested in hygienic facilities. 

The new-age COVID-19 aware workforce is not interested in fitness rooms, communal lounges, or packed meeting rooms. They look for offices with world-class air filtration systems, touchless communication, remote-meeting technology, health and wellness initiatives, and outdoor facilities. 

Static Rental Growth

Demand for quality office spaces has been stronger than supply, and the vacant rates in key areas have been low. With no fresh supply to ease the pressure on demand for commercial rentalrates are unlikely to go down significantly. But if the lockdown persists, there might be a 5 to 10% drop in office rentals. 

Conclusion

While the COVID-19 pandemic has hit the commercial real estate market, the impact has not been as severe as anticipated. It is largely due to the way companies have evolved to the changing needs of the young, digitally enabled, and health-conscious workforce. 

While commercial real estate is going to be in demand, its usage will change. Both the company and the commercial real estate agenthave to wake up to this reality. With office spaces paying more attention to safety and hygiene, demand for commercial real estate is unlikely to fall any time soon.

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