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Top Predictions for Commercial Real Estate in the Wake of COVID-19

July 9, 2020

The COVID-19 pandemic is reshaping the way we do almost everything — and very few industries have been spared from the reach of its morbid fingertips. Commercial Real Estate is one industry that will see dramatic shifts throughout the rest of 2020 amidst the fallout of the virus. We sat down with Metro 1 Vice President Andres Nava to discuss some of his predictions for how the industry will evolve over the next few months as a result. Read more about his top predictions, below.

Prediction №1: Logistics is booming, and so will the market for industrial spaces

It’s no secret that the delivery industry has been thriving during the pandemic, with companies like Amazon posting all-time-high prices for stock and hiring by the droves. As much as it may seem like such companies operate within the cloud and goods magically appear at your door — coordinating two-day or any sort of delivery requires a massive amount of space. While demand for traditional office space may see a drop after the pandemic, logistics companies such as Amazon, FedEx, UPS, and others are ripe to expand.

Plus, with consumers staying home and consuming more domestic goods like groceries and toiletries, cold storage, manufacturers, and other companies servicing the food supply chain may also be looking at facilities expansions coming off of major windfalls from the first half of the year. What does this mean for commercial real estate brokers? Look for non-traditional opportunities with manufacturing companies, and keep an eye out for properties that are well-positioned for supply chain takeover. Warehouses, unsexy as they may be, were a strong market segment before COVID-19, and will only become stronger.

Prediction №2: Companies will reduce space in response to smaller — or partially remote — teams

When it comes to “traditional” office space, expect lots of calls from past clients who may now want to downsize to smaller digs. The work-from-home culture is here to stay — and many companies may realize that they can be just as productive with workers operating from the couch versus a $10,000/month suite on the 14th floor.

Unfortunately, other companies may be forced to downsize to cut costs, or to better fit a reduced workforce in the wake of COVID-19 forced lay-offs. Either way: the trend for 2020, for the most part, will be towards looking at economical spaces in up-and-coming places. As companies consider less-desirable neighborhoods, this could actually have a good effect in the longrun on areas ripe for urban renewal and transformation.

What clients will be looking for in this situation are diamonds in the rough: nice spaces in rough places, or places in great areas that might need a little TLC (aka T.I.). Agents and brokers should roll-up their sleeves, get creative, and leave no stone unturned.

Prediction №3: Lease structures will lean towards the non-traditional in order to meet tenants’ current thresholds

Two segments of the economy that are certainly suffering during this time are restaurants, and non-essential small businesses and retailers. For salon owners, boutique managers, and restauranteurs, this will be a long, slow, uphill recovery. Understanding that this is a market-wide problem that’s left few small businesses unscathed, savvy landlords will look at restructuring their lease terms in order to preserve some of their cashflows and retain tenants — especially if they’re good ones.

For instance, a lot of the deals we are putting together for our clients right now are structured with lower payments during the first six months of the lease term, in order to give small businesses extra breathing room to regain stamina. Whether you’re originating a deal or running into walls with your current contracts, now is a great time to work with your broker to work out amicable solutions for all parties involved.

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