Covid has caused a pause in Real Estate
Before a pandemic interrupted the economy, commercial real estate was projected to have a great year in 2020. At the beginning of the year, it looked like these projections might be accurate as bidding wars infiltrated the market. However, the unknown led to a lot of uncertainty. Lacking knowledge of what would happen during the pandemic led to requests for short-term leases, rent reduction, and other requests that have negative effects on real estate as a whole. Eventually, the closures enforced by the government and lack of cash flow resulted in a drop in demand for commercial property, causing a bit of a pause for the real estate market.
What does this mean for Commercial Real Estate?
Imagine owning a piece of commercial real estate… Now, imagine your renters don’t have enough business to pay their rent. This is happening all over the world due to the shutdown of businesses during the pandemic. It is disheartening for anyone who owns commercial real estate and discouraging to those looking to purchase any. This creates a cash flow problem: when renters don’t have the money to pay their rent, owners have trouble paying the mortgage. Vacancies are continuing to fall and economists are suggesting that things will only get worse. As commercial landlords lose the ability to pay their debt and default on their payments, banks are losing their revenue and tightening loan standards. As the cycle (of tenants not being able to pay, commercial landlords needing the money, and banks tightening up) continues the economy will have a hard time getting back on its feet.
Will things get better?
Many businesses are looking to cut overhead costs just to stay afloat. One of these larger costs is space. So, they are looking at alternatives such as delivery and working from home. As a result, commercial landlords may continue to see a halt in rental revenue. However, numbers are rising from what they were in March when COVID truly hit, and things are beginning to look up. Several sub-sectors in the exchange-traded sector are beginning to see revenue again and real estate investors who are involved in many sectors are beginning to receive rent once again. While some operations such as retail and other foot-traffic reliant businesses may still struggle, there is hope.
As the vaccine is released and the number of COVID patents declines, commercial real estate is expected to rebound and people are expected to be excited to shop and eat and travel once again. Projections also show that the economy will begin to bounce back in 2021. Employment rates are rising and that positively impacts individuals and their ability to pay rent.