With very few exceptions, most global markets have been hit hard by the ongoing pandemic. In real estate, the impact has been rather significant due to factors such as unemployment, mortgage deferrals, and mandatory business shutdowns. Commercial real estate, then, has taken a considerable blow. As businesses begin the steady process of reopening, the market is slated to recover, but the impact of the pandemic is sure to be long-lasting and influential moving forward.
Biggest Immediate Impact
Within the commercial real estate market, not all businesses have been affected equally. Larger businesses, especially those that participate in e-commerce, have fared much better than smaller mom-and-pop stores and other small businesses. Because of that, landlords whose buildings house small, independent businesses have generally seen more lapses in rent, requests to terminate leases, and overall a lower income across their tenants.
Co-op properties that house not only retail but also more recession-proof businesses like doctors offices have likely experienced a less stark decline in income. Certain businesses that were initially deemed “essential” were able to continue operating through the lockdowns and other orders that spread across the world. Because of this, grocery stores, pharmacies, and urgent care facilities (among others) were able to function almost as usual, and were thus able to pay their rents without issue.
In situations where tenants have not been able to make their regular payments, shareholders were then made more responsible for covering the costs of utilities and maintenance, making their investments in commercial real estate seem detrimental to their portfolios.
Unlike other areas of real estate, namely residential, commercial real estate will likely require more time to truly bounce back. While many regions are experiencing a slow reopening, many businesses are limited by the number of patrons they may allow in their stores at a time. This, naturally, results in a lower projected profit over time. For residential properties, individuals looking to buy or sell their homes may have greater success as the economy picks back up, but commercial real estate may continue to struggle solely because of restrictions on capacity as well as general attitudes of reservation and caution.
While the fate of commercial real estate is not certain, it is likely that commercial real estate properties may shift their tactics in acquiring tenants moving forward. Rather than opting for traditional businesses, landlords may instead seek out recession-proof (and pandemic-proof) tenants like those in the medical industry. Co-ops, then, may serve as a roadmap for the future of commercial real estate. This is, of course, conjecture, and it is possible that, through a combination of renewed in-person sales as well as more attention toward e-commerce, retailers will manage to stay afloat and pay their rent without further issue. How society proceeds from here and what that means for the commercial real estate industry remains to be seen.
Though each real estate property varies based on its tenants, it does seem that co-ops have performed relatively well for investors over the course of the pandemic so far due to their resiliency and the nature of the businesses that set up shop within them.