Real estate trends have significantly changed during the pandemic. These trends impact commercial leases.
As we approach more and more normalcy in the world, there are even more changes taking place. Let’s delve into a few commercial lease trends you should keep in mind if you’re interested in investing in commercial real estate this year.
Changes By Space Type
When the pandemic began back in the United States in March 2020, most office spaces needed to close for safety purposes. Now, more and more offices are getting the go-ahead to reopen. However, Forbes points out that office spaces will likely look different in the post-COVID world. Social distancing, remote and hybrid work and coworking are a few things commercial real estate investors must keep in mind. Companies may be more interested in smaller office spaces to accommodate hybrid work schedules. While some companies may want larger spaces so all employees can socially distance themselves at work.
Restaurants also took a hit during the pandemic, with many only being able to offer take-out services. Now that restaurants are opening and getting close to maximum capacity again, owners may be interested in different spaces and different leasing options. Restaurants may even want to find more outdoor-friendly spaces to accommodate more customers in a larger, more health-conscious way. In addition to outdoor spaces, many restaurants offer counter service and online ordering. This allows them to reduce overhead and hiring costs by hiring fewer wait staff. Plus, it also makes it easier to social distance.
Retail spaces are back open, but the experience may look different now. Because of the pandemic, many shop owners had to turn to their business websites as well as test out new technological ideas to make sales. Aside from this, First National Realty Partners infers that bigger commercial spaces may be in demand so retailers can have additional space for storage, stock rooms, enhanced cleanliness, and basic legroom so that customers and workers can feel comfortable moving around the store without needing to be face-to-face with others.
For those interested in retail spaces, it’s important to see if shop owners are becoming accustomed to technology and new ways of making sales. This way, your commercial tenants will be able to make their payments.
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Commercial Leasing – New Lease Clauses
The pandemic’s public shutdown caused issues with commercial real estate tenants being able to pay their dues. COVID-19 clauses were put in place to help both commercial renters and landlords. In fact, Commercial Observer writes, “As a result of lessons learned from the stay-at-home orders, retail tenants have become emboldened in negotiations, requiring rental abatement in leases should governmental orders result in their inability to operate entirely or at full capacity.” Flexibility is key for anyone involved in commercial real estate post-COVID.
Shorter Lease Terms
In the post-COVID world, commercial real estate landlords must be willing to negotiate shorter lease terms. With more flexible working abilities due to remote work, offices may want more lease term options. Wealth Management explores this idea and details how short-term leases will be better for both commercial landlords and tenants. While remote work is trending, more offices may want to open back up in the near future. They’ll likely want short-term leases to start out.
Broad Industry-Wide Changes
A Shift from Urban to Suburban Commercial Districts
The pandemic probed moving trends throughout the United States. More people moved out of cities and into rural and suburban areas. The Harris Poll writes, “Nearly 40% of U.S. adults living in urban areas indicated they would consider moving ‘out of populated areas and toward rural areas,’ compared to 29% of overall respondents.”
Therefore, there will likely be an influx of business owners wanting to relocate or open a new store or space in suburban areas. Commercial real estate investors should actively seek business owners interested in leasing commercial spaces as well as commercial real estate investors to fund their efforts in these areas now.
Essential Business As Desirable Anchor Tenants
During COVID, essential businesses remained open. This means that commercial landlords leasing to these businesses didn’t have to worry quite as much as others. In the future, commercial landlords may seek essential businesses to fill their commercial spaces for security purposes. Essential business owners will likely have the easiest time finding commercial spaces and negotiating lease terms that suit their needs.
Armanino points out that investors will continue investing: “Investors may shift to tier-two or tier-three markets. There is a high chance money will just flow in different directions, and we will see new, warm trends, post-COVID-19.” Therefore, it’s important for commercial real estate landlords to continue to seek investors that will help propel business.
Commercial Lease – Summing It Up
There’s no doubt that commercial real estate landlords will need to adjust their ways of thinking post-COVID. Commercial leasing has changed because of the pandemic. Look to these trends as you navigate commercial real estate investment opportunities in 2021 and beyond.
Scott Russell is the owner and broker-in-charge of Freestone Properties in Asheville, NC.