Commercial Real Estate post COVID-19

Dated: June 14 2020

Views: 183


Commercial real estate post COVID-19 is an unusual situation that has shown just how important factors such as human interaction and socialization in the workplace truly are, because of this businesses are moving to remote work stations to help combat the situation as well as downsizing in the process to keep businesses turning a profit. 

With the economy pausing on a more short-term basis in order to properly readjust, business owners will essentially have to reconsider their long-term plans and listen to their consumer base. For instance, if they previously had 35 square feet to themselves before, it will now translate to 70 square feet in order to properly allow operators to act responsibly due to new guidelines involving social distancing.

Employees and employers alike have now made the determination that they will be able to remotely work via video conferencing, thereby initiating discussions in regards to “right-sizing” offices. Even though distractions inside the home naturally exist, overall productivity remains high enough to still consider a more long-term strategy involving only essential employees going to the office.

In the city of Houston, the “flight to quality” trend is something that has been the main discussion point over the past few years, meaning that as an employer, approximately 15% to 20% will be overpaid for office rent in order to remain in line with competitors to offer various amenities focusing on a live-work-play workplace. Typically, this includes the concept of densifying a space in order to offset increased rental costs.

With social distancing currently being implemented in a vast majority of locations, the chances are great that there will be a “flight to lower-priced alternatives,” which essentially translates to more space and lower cost. This means that there will be opportunities that didn't actually exist before, which includes larger subleasing opportunities thanks in large part to oil companies and energy companies downsizing due to current oil prices. As a result of the ongoing COVID-19 pandemic and the economy, landlords will end up having to come up with ways to attract tenants thanks to increased competition.

Another factor to consider due to spaces being redesigned in order to accommodate COVID-19-based workplaces is that it will end up translating into long-term effects of how business is conducted. Many leases are, on average, five years in length, meaning that if a less dense workplace and higher circulation is implied, a tenant could be stuck with this particular model for the term of the lease. Implementing specific operational changes including a work-from-home strategy could end up becoming a more permanent and long-term option that will have to be accounted for by employers.

Furthermore, landlords, tenants, and buildings will also need to operate in a different manner due to the overall health and safety of a worker will be the main focus more than it previously had been. Landlords that focus more on precautionary measures will likely end up winning in terms of attracting and retaining tenants.

In terms of tenants, employers will need to take the time to look long and hard at their culture. From there, they will need to determine a more flexible office footprint in terms of functionality. Landlords who are able to embrace a repositioning involving their assets in a post-COVID-19 environment will likely be able to lease spaces. This repositioning will involve health safety measures that focus more on an individual's health than it previously had before.

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