The COVID-19 pandemic resulted in the shuttering of thousands of U.S. restaurants, hotels, and other businesses as it kept non-essential business owners and their employees at home, wondering how and when they’d be able to recover. With many industries continuing to struggle nearly a year later, the future of some industries like the travel and hospitality industry may have an easier road to recovery. However, due to the way many businesses had to change the way they operate in a COVID-19 world, the future of commercial real estate properties, such as office and retail spaces, are expected to encounter a more difficult recovery.
Understanding what this post-pandemic future could look like can give commercial landlords better insight into what they can anticipate from tenants for 2021 and beyond.
The Future of Office and Retail Space
As stay-home orders and lockdown protocols began many businesses had to restructure their operations so that employees could safely work from home. As vaccines become more readily available, business will have to make a decision of how, and if, they will return to working in an office setting. Some businesses that traditionally used office spaces may decide to permanently remain remote, as it affords employees flexibility and reduces overhead costs for the employer.
Others, who decide to return to an office setting may implement various safety precautions, including providing proof of vaccination, when returning to a physical office. Some businesses may implement require some employees to continue working remotely, while others work in the office. Another option is a hybrid method where employees have access to an office space for meetings or only work at the office a few days a week.
Similarly, some retail companies adapted to provide more online and delivery capabilities. However, smaller businesses typically rely on brick-and-mortar sales to run their operations may need to find a more digitally focused way to make sales rather than relying on foot traffic.
While COVID-19 has undoubtedly changed the way many businesses operate, offices and retailers are likely to experience the most major shifts, as the pandemic continues to negatively impact commercial real estate.
The Impact on Commercial Real Estate
Many commercial landlords rely on financial assistance from lenders to grant them forbearance, which allows landlords to pay back their mortgage at a lower rate or pause payment. This frees up some of their capital, so they can put money back into their properties and sell them at distressed prices. However, billions of commercial real estate debt is about to mature, and lenders and borrowers must determine which businesses are going to remain financially viable in a post-pandemic world.
Industry experts predict that the travel industry is likely to recover as well as the hospitality industry though it will be a problematic year, but retailers and office buildings won’t be as lucky.
These distresses are due to billions in bonds backed by commercial real estate loans which are not being paid on time or in full. These loans had a 14% delinquency rate for commercial mortgage-backed securities (CMBS) for retail businesses in November 2020.
With the rise in office and retail space vacancies coupled with falling rent prices, commercial landlords are likely to have an increasingly difficult time paying back their obligations. Landlords in many high-cost areas will likely only continue to grapple with higher vacancy rates as many businesses plan for totally remote futures.
Landlords Continue to Struggle
While many business operations in varying industries will see major changes in the months and years ahead following the coronavirus pandemic, commercial landlords are still working with tenants on shorter leases and deferred rent payments to avoid getting stiffed on rent. The pressure on commercial landlords is compounded when bank lenders become unable to work with them on their loan payments. Because of this, it’s important that landlords seek legal counsel when dealing with a tenant that fails to pay rent.
Commercial Lease Dispute Attorneys
While many businesses have the means to pay rent, that doesn’t stop some of them from refusing to pay it. At Raizner Law, our team of experienced attorneys has years of knowledge representing commercial landlords in Texas and beyond. If you are a commercial landlord dealing with a large national tenant that is delaying or refusing to make rent payments at your expense, contact our offices today to see how we can help.