How COVID-19 has Affected the Commercial Real Estate Industry

Ever since the COVID-19 pandemic has surfaced, it has had far-reaching effects on all industries, and commercial real estate is no exception. Lockdowns, social distancing, remote work, layoffs, and quarantines have dramatically impacted the demand for commercial spaces like shopping malls, retail centers, and strip malls. The way real estate business is conducted has fundamentally changed. This guide takes a detailed look at how COVID-19 has affected the commercial real estate industry.

Examining the Impact of COVID-19 on Commercial Real Estate

Prior to the coronavirus outbreak, real estate investments have generated steady returns with only some degree of risk. The arrival of the pandemic altered this reality. Throughout the value chain, real estate players have been hit pretty hard. Mitigating health risks for customers and employees is an ongoing risk for service providers. Struggling to obtain construction permits, many developers are faced with stoppages, delays, and significantly shrinking rates of return.

Property owners and operators, on the other hand, are faced with significantly reduced operating income. More than ever, they’re concerned about commercial tenants struggling to make their lease payments.

Besides this, different commercial real estate properties have been performing differently throughout the crisis. The major hit is taken by commercial assets that have a high degree of physical proximity with their users or those with high human density. Examples of such properties include shopping malls, student housing, healthcare facilities, and lodging. Others with low human density such as data centers, industrial facilities and self-storage facilities have been subject to less serious declines.

Among the high-impact sectors, property prices fell by 25% or more. For lodging, in particular, the value of real estate assets fell by a staggering 37%. When universities send students home, shoppers avoid crowds, hotels, and restaurants, and retail centers close down, it’s no wonder that these properties drop in value.

Yet, there are sectors in commercial real estate that demonstrated sustained activity during the pandemic. These include certain retail spaces for essential facilities like pharmacies and grocery stores, self-storage facilities, and warehouses for e-commerce. Similarly, many investors have stayed active in the commercial real estate market from the beginning of the coronavirus pandemic, although issues around document signing, appraisals, and site visits kept their pace slow.

Commercial Real Estate In NY, NJ, and FL

Based on the insights explained above, as economies evolve, we can expect increased volatility in the commercial real estate market. With remote working becoming the new normal, commercial availabilities that reflect worker safety and social distancing will be in high demand, while old-style offices that lack the necessary safety and health amenities will likely become obsolete.

If you’re looking for a commercial vacancy such as a retail vacancy, contact Milbrook Properties Limited at your earliest.