Flexibility: The Key to Navigating the Effects of COVID-19

By Natalie Jones / 09.28.20 / 3 min read

Throughout this year, COVID-19 has created clear signs of economic turmoil within commercial real estate as seen with a diminished need in office space along with bankruptcy in the retail sector. Its impacts also extend to an unprecedented approach moving forward for tenants and landlords with a key component: flexibility.

Given the new norm of at-home work, companies will allow their employees to have more say in where they work on a daily basis. Additionally, companies will incorporate assessments involving the costs of keeping an office space versus the costs of technology for a hybrid workforce. Options for completing work include coworking areas that are expected to regain popularity with its flexible set-up.

Even with this type of strategic planning for the future, companies are still reluctant to make long-term decisions due to the uncertainty of the pandemic. This is why shorter office leases are on the rise. Companies look to steer clear of new long-term commitments and elect for short-term investments that keep their options open such as a lease extension. This is evident with the increase of renewals from 29% before to the onset of COVID-19 to the current figure of 51%.

Flexibility also transcends into the retail sector of real estate. Retail rents are difficult to predict because of the double market comprised of essential and nonessential tenants. What does this mean for investors? They have to be able to adapt to the impacts of other factors. According to Chris Rizza, a partner at Crosbie Gliner Schiffman Southard & Swanson, this includes the location of a shopping center, the tenant mix, and the type of services and/or goods that tenants offer.

An open mind combats the uncertainty around a combination of decreased retail rent collections for non-essential uses and relatively stable rents for essential uses. Rizza notes that malls with outdoor spaces could be more solid compared to indoor malls because they make it easier for visitors to practice social distancing. He expresses confidence in the status of essential uses.

“I believe rents for tenants that provide essential services—like grocery stores, home improvement—or experiences—like gyms, movie theaters, restaurants, and bars—will generally remain stable. There are portions of the general public that are eager to get back to a sense of normalcy,” said Rizza.

As the industry rebounds from the pandemic’s effects and pushes for a more normal future, tenants, landlords, and professionals are anticipated to face bumps in the road that call for a flexible mindset. To read the full articles on these changes in the industry, click here:

Source: What’s the Future of Office Real Estate? Flexibility

Source: Office Leases are Getting Shorter

Source: Where Are Retail Rents Heading?