The Impact of COVID-19 on the Commercial Real Estate Market

As the effects of COVID-19 swiftly encompass the globe, real estate companies are being profoundly impacted based on their asset type, sector and region. Companies are grappling to preserve financial stability, respond to changing demand dynamics and labor shortages while complying with legislative requirements. Occupiers facing liquidity burdens may turn toward deferring or terminating contractual lease payments. Key sub-markets, most notably hospitality and retail, are likely to face immediate and direct effects while sub-sectors, including offices, could be impacted by evolving supply chain and remote-working patterns. However, while business volumes are heading toward a fall in the near term, they are anticipated to exhibit a revival in the longer term.

Potential Impact on End-Users and Real Estate Companies

The impact of COVID-19 on the global commercial real estate sector is evident in the standstill in office expansion plans, minimal sales and numerous deferments in leases. Customers are deferring purchases across the sector, which in turn may result in significant revenue disruption, along with reduced demand and realizations. In the near term, investment activities are set to register a sluggish growth in the commercial real estate market. As travel restrictions, business halts, and lockdowns dominate global markets, deferred property launches, coupled with prolonged transaction schedules, are becoming more frequent.

As for the longer term, the demand for office facilities and workspaces will continue to be a key aspect. It is expected that corporates will exhibit some reluctance in entering capital intensive projects, while stimulating demand for preconfigured spaces. Occupiers are expected to proactively pursue third-party real-estate services to sustain their business operations with demand for advanced workspaces, equipped with more health-oriented, digitalized and flexible solutions. While some firms may consider remote working as a viable alternate to diminish their realty footprint, most corporates are looking to embrace risk mitigation strategies. Strategies under consideration include higher investment in remote-working facilities, de-densification and more health-focused spaces.

Legislative Restructuring Can Ease Fiscal Burdens

Global economies are increasingly implementing amendments and extending fiscal support measures in their real estate policies with the objective to lower the burden on occupiers and owners. For instance, the US federal government has issued a 120-day moratorium on evictions on facilities with federally backed loans and on federally subsidized housing. In addition, U.S. states have further stalled construction on projects other than medical facilities. The country has implemented several amendments at its state and local level.

In the APAC region, property owners in several locations have extended rent discounts and provisional rental rebates. Furthermore, southeast Asian economies, including Singapore, are enacting legislation with an objective to support commercial occupiers facing inadequacies to pay rent for a duration of 6 months. Similarly, the EU is lending fiscal support to commercial occupiers with offers on mortgage and rent holidays. Several frontrunner regional banks are considering forbearance on late payments with key countries, most notably Italy and France, halting their construction projects.

Conclusion

The current pandemic is a fast-evolving environment with effects of varying magnitudes on commercial real estate markets. The intensity and the duration of the pandemic will significantly regulate the extent of disruption in the sector’s performance. The growth trajectory of the industry will be largely impacted by the countermeasures of financial and legislative institutions to suppress the adverse effects, while also being shaped by the advent of structural changes in facilities management.

Sources

• https://www.gsa.gov/real-estate
• https://www.nclc.org/issues/foreclosures-and-mortgages/covid-19-state-foreclosure-moratoriums-and-stays.html
• https://news.bitcoin.com/us-real-estate-jeopardy-housing-market-crash
• https://www.iras.gov.sg/irashome/COVID-19-Support-Measures-and-Tax-Guidance/COVID-19-Support-Measures-and-Tax-Guidance