It’s no secret that the COVID-19 pandemic ignited an economic crisis. As businesses were forced to shut their doors, employees were laid-off or furloughed. Households struggled to pay their rent. And while some people were given leniency on their payments, others were evicted from their homes.
But employees were not the only ones impacted by the nation’s pause. Many small retail businesses and restaurants were forced to permanently vacate their commercial spaces. Even corporate chains struggled to continue business as normal and pay rent. Some, like Mattress Firm and Subway, have even insisted on rent reductions through lease amendments.
The COVID-19 pandemic may have forever changed the commercial real estate industry.
Potential Long-Term Effects
So, what happens to the billions of dollars in rent owed by businesses? It’s too soon to tell. The coronavirus economic relief proposals do not directly address rents. After the pandemic subsides, the court system will likely see millions of disputes between tenants and landlords. As property owners’ debts grow heavier, the government will need to intervene and provide aid in some fashion in order for things to return to a semblance of normality.
Commercial Real Estate Adapting to Change
Though we will one day be able to return to work, the workplace will likely look and feel a lot different. Offices may suddenly seem crowded to employees returning to work after spending months avoiding human contact. So, to comply with their employees’ growing need for personal space, many businesses will likely allow them to continue working from home. And with more employees working from home, businesses will not need to face the added costs of new health and safety standards in the workplace. They will also save money they would’ve otherwise spent on infrastructure.
As the economic crisis continues to strike the nation, businesses will need to cut costs wherever they can. What was once forced from necessity, will now become a chosen way to conduct business. Now that employees and employers have experienced the freedom and flexibility of remote work, it is likely to become the new norm. And with this new norm, there will be less of a need for commercial real estate because people will be spending more time at home.
Online Business Booms
While brick and mortar businesses struggle to stay afloat, online businesses boom. With the order to stay at home, people browsed the internet to find the things the needed, from clothing to groceries, and have them delivered to their doorstep. Consumers who were hesitant to shop online before the pandemic had little choice but to finally take the plunge place their orders. The convenience of online retail will likely make a lasting impression on many consumers long after the pandemic is over.
What does this mean for commercial real estate? More people will likely shop online than in retail stores. And with this shift, there will be a growing demand for warehouse space as opposed to shopping malls and retail stores.
