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HomeNewsletterOffices, Malls will have a different look after the Pandemic

Offices, Malls will have a different look after the Pandemic

The COVID-19 pandemic has disrupted the commercial real industry in all areas, but especially office buildings and retail shops. The disruption didn’t come as much of a surprise during the height of the pandemic—government mandated shutdowns forced employees to work remotely while retail centers were closed and people did most of their shopping online. The concern for the CRE industry now comes as these same offices and stores begin to reopen. Businesses are still keeping their telework policies in place and there hasn’t been a rush to resume shopping in brick and mortar locations. The shift raises the question: if office buildings and retail centers remain vacant even as the COVID-19 pandemic subsides, what will become of CRE?

Well, the good news for CRE owners is there will always be a need for office and retail space, even if the demand is less than it was pre-pandemic. The need for office space comes from a fair number of employees who want to return to work. According to a recent Gensler Research Institute survey, 44% of respondents said they were in favor of the standard five-day at the office work schedule. Only 12% of employees wanted to continue working remotely five days a week. The employees who want to return to the office listed “the people” as the main reason why. They miss collaboration and the face-to-face interactions that don’t exist in a telework environment.

So, regardless of how many companies implement indefinite remote work policies, CRE office building owners can rest assured that there’s still an appetite for their properties. They will just have to adjust to new ways of doing business. First, there’s the matter of building safety. Any tenant that decides to resume operations in an office will want assurances that it’s safe for their employees to come back into the building. It will be up to CRE owners to provider those assurances, whether that means more common area cleaning, hands-free entryways, new air filtration systems or all of the above.

Lease term flexibility is another change CRE owners might have to consider post pandemic. If the goal is get tenants back in the door, property owners might have to make some concessions such as shorter leases. This is especially true as flexible office space providers try to rebound from the pandemic—even WeWork, which has had its share of financial troubles in the last year, is considering a second shot at an initial public offering. Tenants will have their choice of buildings to come back to as CRE owners attempt to fill vacancies—the more flexible they can be the better.

The future of retail post-COVID-19

Malls and retail shops might face a steeper climb than office buildings following the pandemic, but there’s still hope for them. For instance, rent collection has improved from 49% in May to 82% in September, The Wall Street Journal reports. The 82% mark is not ideal, but it’s a sign that retailers are in somewhat of a better position than they were nine months ago.

Much like with office building CRE owners, flexibility could be biggest beneficial change retail property owners could embrace post-pandemic. This flexibility could come in terms of how rent payments are collected, or how CRE owners use their properties. For example, real estate management and development company Brookfield Properties recently announced its leasing parking lot space at 73 of its malls to Collection Sites to use as COVID-19 “pop-up” testing sites. Other creative uses for vacant retail space include childcare facilities, healthcare clinics and cannabis shops. Meanwhile, grocery stores have still maintained decent foot traffic—there are still a number of online shoppers who prefer to pick up their goods in person. This makes property that neighbors grocery stores more in demand.

There’s no target date for when things will return to “normal” for the CRE industry. The only guarantee is that the industry will be different following the pandemic, but that’s better than non-existent. It will be up to CRE owners to adapt to a post-COVID world and do what they can to meet their tenants demands, whether they’re financial, safety or connectivity-based.

Joe Dyton can be reached at joed@fifthgenmedia.com.

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