The commercial real estate industry will never be the same again. However, it’s not clear that the impact of the 2020 pandemic will be entirely devastating. What changes can we expect to see after the lockdown loosens up and the new normal settles in?
The truth is, no-one really knows (anyone who says they do is probably trying to sell you something). What we can do is make some educated guesses based on the current trends and historical data. Here’s what we’ve gleaned from this analysis:
1. New codes and regulations
In recent years, commercial properties have been focussed on fitting as much as possible into the space on hand. However, in the wake of COVID-19, there will likely be building code overhauls and health and safety regulation updates demanding more space per person. A reversal of the open-plan office trend will likely go hand-in-hand with this.
What does this mean for property owners? You may have to make a lot of changes to your properties to ensure they are up to standard and in-line with the new codes and regulations.
2. The threat of eCommerce
Bricks and mortar establishments were already under threat before the global pandemic forced everyone indoors and online. 2019 seemed to be the year of brands closing down thousands of stores, and in some cases, going bust altogether.
So, the sweeping global lockdowns of 2020 felt like the final death blow to an already struggling industry. Non-essential retailers have been forced to shut up shop, and many of them are refusing to pay rent to their property owners. Amidst all this mess, online retailers are picking up all the slack, so when the new normal kicks in, we’re likely to see a permanent change in people’s shopping habits, resulting in an overhaul of how retail spaces operate.
3. A new lease on life for commercial properties?
Of course, we can’t assume that commercial real estate will wither thanks to the rise of eCommerce. People have a remarkable way of adapting, so rather than empty malls and office buildings, we’re more likely to see a reinvention of what these properties are used for.
Clever property owners will find new ways to advertise their spaces and a new target market to reach out to. Though a paradigm shift seems unavoidable, there’s no reason to assume it will be a dismal one.
4. A shift in investment habits
Many stock market investors have now lived through enough economic crises to be incentivized to diversify their portfolios by adding commercial real estate. Indeed, the sentiment among some investors is that they’d rather minimize the amount of capital they have tied up in the volatility of the stock market.
With the commercial real estate market in a massive downturn, savvy investors are seeing the potential lurking in the seemingly dark situation. Though it may currently be a renter’s market, the one thing we can say for sure is that nothing ever stays the same for too long. So, it’s likely that we’ll see a rise in CRE investment over the coming months and years.
It’s hard to say with any certainty what changes the global pandemic will bring to the commercial real estate industry. Though the upheaval has come with many downsides, there are also plenty of opportunities to be snapped up. It may be a tenant’s market at the moment, but all clever investors know that with time, patience, and a well-thought-out strategy, the tide of change can turn to your advantage.