4 Ways The Pandemic Has Changed Commercial Property Management

The global coronavirus pandemic has led to a complete transformation of the urban environment. Once bustling city streets have become relative ghost towns. Fewer cars clog the freeways, and fewer pedestrians inhabit the concrete.

Still, industrious and enterprising developers are doggedly pursuing new opportunities. Despite the prevalence of remote and teleworking, the real estate market for 2021 looks promising in Chicago. In most markets, absorption is outpacing vacancy and developers are taking the opportunity to strike.

“We remain optimistic in 2021.  With most/all business taking a pause in 2020 and into early 2021, we are starting to see a positive amount of activity around office and industrial spaces.  The progress on the vaccine front has given businesses hope and are poised for operational transition in the upcoming months.” –Tony Marino, COO & Principal, Cawley Chicago Property Management

So, what are the kinds of lasting effects the coronavirus pandemic has caused?

Let’s take a look at four ways the pandemic has changed commercial property management today.

1. Use of Retail Properties

Retail space as we know it no longer exists in the same way it always has. The pandemic has forced restaurants, cafes, bars, shops, and small businesses to shut their doors- sometimes permanently. For now, restaurants no longer allow dine-in visitors, although many remain open for delivery and take-out options. Shops have transitioned to eCommerce and other digital shopping platforms, while gyms have transitioned to virtual fitness classes and one-on-one video coaching sessions.

So, what does this mean for commercial property management of retail spaces?

Landlords and commercial retail property owners need to understand all of their options. With tenants failing to pay rents and businesses shutting down, property managers may seek to rid themselves of their holdings. In fact, landlords and property owners should do everything in their power to continue to retain occupancy. The risks connected to lengthy vacancies and evictions are higher than the cost of negotiating lease modifications, reductions in rent, or even short-term rent relief. Patterns have indicated that some businesses potentially may decline to renew lease agreements, leading to a decreased demand.

Landlords and property owners should critically and honestly assess the current landscape and craft plans based on these present conditions- and likely future scenarios. Feasibility plans that allow time for obtaining necessary approvals to lease amendments and other actions will help savvy owners get ahead despite the pervasive uncertainty the pandemic presents.

“Owners are being creative with tenants to partner in a solution that is fair to both parties.  We have seen rent deferment and lease extension agreements negotiated as a means to provide tenants some rent relief during these difficult times.  This flexibility by the Landlord is allowing most of the retailers in our portfolio to survive during the pandemic.  In addition, a large push has been made to reduce/lower costs during these times to control the Operating Expense exposure.  Property Managers have been task with scaling back on services during the lower occupancy periods.” -Marino

2. Use of Office Space

The same logic applies with office spaces. Both conventional and creative office spaces are suffering as more and more employees transition to working from home. The office spaces in the post-pandemic era will likely maintain some form of hybrid office space- a more economical decision for some tenants, as the only immediate necessity is a high speed internet connection. Many employers have already stated that they will continue to allow for remote working after the pandemic, especially as the vaccines continue to be distributed.

The desire for office space will remain long after the pandemic has ceased to be an issue; it’s the use of the space that will change. With some employees alternating days at home and in the office, some business owners have elected to downsize their physical office spaces to match the reduced usage patterns. At they same time, they have upgraded their online platforms to include a broad net of employee resources.

Property management of office spaces follows a similar pattern as the retail industry. Landlords and property owners must continue to focus on communication with tenants, partners, and investors, to continue to evolve creative approaches to this downturn in physical space usage. Managers continue to have to discuss modifications to loans and leases with advisory boards and major investors, to ensure that all parties are proactively striving to meet the current scenario with a commitment to protecting investment interests.

“Landlords are continually tasked with finding the items and amenities that set themselves apart for the market.  The current environment forced Owners/Landlords to bring this to the highest priority.  We think there will be a strong push in the single-story office market and having turnkey fully furnished spaces and/or furniture packages included with the Tenant Improvement package are things we are seeing done to position vacancy for quick lease-up.  There is a larger push to take away the barriers of the decision making process and make the choices easier for prospective tenant.  In addition, adding other amenities such as high speed fiber, food services, and “clean” building initiatives are likely to be front and center going forward.” -Marino

3. The Hospitality Industry

The hospitality industry has undergone a similar decline due to the pandemic. With guests canceling holidays due to fears around staying in communal areas, and international travel restricted, many hotels have had to close. Those that have managed to withstand the increased demands of the pandemic have adapted with sophisticated cleaning and sterilization procedures and reduced guest capacities.

With stringent competition from private holiday rentals, savvy landlords have pursued more private holiday rental properties, following the travel guidelines that recommend Airbnb’s or similar rental options may be a safer choice than hotels. The market has suffered from the effects of lockdowns, canceled flights, and high risk CDC travel restrictions and guidelines.

4. Surge in Demand for Industrial Space

Still, the pandemic has caused some unexpected upswings in the commercial property industry. With the closing of in-person retail and office spaces, there has been a corresponding boom in the demand for industrial space. Global delivery companies like Amazon are continuing to demand more warehouse packing spaces with expanded spatial requirements, as online retail markets have skyrocketed due to the pandemic. Industrial space with size enough for shipping preparations, including assembly lines, truck delivery, and sanitizing stations, have become a vital real estate resource.

One particular area of growth has been among last mile distribution centers. Essentially the key pin of the industrial supply chain, these warehouse spaces serve as staging areas to facilitate the final delivery. They see the combined import of goods and products from overseas that have traveled to a particular location convenient to the specific neighborhoods it serves. For urban and suburban areas, these warehouses are at a premium. As the demand for online retail has increased, the need for last mile distribution centers has increased accordingly. Particularly for grocery deliveries or other perishable items, customers rely on these operation bases to get them their goods quickly and efficiently. For older shoppers who no longer go out, last mile distribution centers become their little known retail lifeline.

The Changing Face of Commercial Property Management

While this current period of uncertainty reflects major shifts across various sectors, reports indicate that real estate will bounce back. With a heightened demand for large industrial spaces, property investment managers may shift their focus away from smaller commercial properties, zeroing in instead on large-scale operations, with a global to local supply chain reach.

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