For many, the Covid-19 pandemic is receding into the rear-view mirror. Gone are the days of social distancing and mask-toting, back are the days of dinner parties and music festivals. For most in the US, a given weekend feels a lot like it did before anyone knew the word “coronavirus” and yet not everything is back to normal. Indeed, in some sectors, things are worse than ever and not improving. The commercial real estate market sector is one such example.
If You’re a Landlord the Pandemic is Far from Over
Those who own big office buildings had hoped this autumn would put an end to two dismal years of trying to keep the doors open. With workers returning to their desks, it seemed to be about time occupancy rates returned to their pre-2019 levels. Unfortunately, this didn’t happen.
In New York, Boston, Atlanta, San Francisco and other cities attendance at office buildings remains far below pre-pandemic levels. Vacancy rates across the country stand at a record 19.1 percent, with numerous major urban centers reporting numbers in the 20th percentile. As leases come up for renewal, these stats are likely to get worse.
Companies are opting for smaller spaces with better amenities. Major tech companies are laying off workers by the hundreds of thousands. High interest rates are holding landlords back from buying new buildings or making improvements to those they already own. The picture is bleak.
According to one study conducted by business professors at Columbia and New York University, the value of US commercial real estate could drop by 39 percent or $454 billion in the immediate future. For those cities that depend on the tax revenue office building provide, this is troubling news.
How Did This Happen? And What Can We Do?
The global shift toward working from home or hybrid work is among the biggest drivers of the commercial real estate market disruption. There is simply not the same level of demand for sprawling office spaces. Increasingly, companies want less space and better amenities to accommodate a shifting workforce with new priorities.
To the surprise of, well, no one, working from home was a big hit at the height of the pandemic and workers are unwilling to go back. Hybrid work has become a sort of meet-in-the-middle compromise and yet this, too, means less demand for office space.
If you own commercial real estate, there are plenty of things you can do to weather the moment but perhaps the most important is getting an appraisal. You can’t decide whether to sit tight, sell, or renovate until you know the value of what you own. A commercial real estate appraisal gives you a clear-eyed view of where you stand and gaining clarity, of course, is the first step to taking action.