Impact of COVID -19 on the Commercial Real Estate Market

Many of us notice an increase in the ‘For Rent’ online advertisements in the past few months. The commercial real estate market is one of the quickly affected industries all around the world. With many businesses working online and a few other worst-hit companies closing their business once and for all, the real estate market depending on such businesses is devastated and is becoming completely weak.

A weak real estate market can mean layoffs among its estimated 3.6 million workers. Especially in Austin commercial real estate, many hotels, restaurants, commercial office spaces and store fronts are closing their business either temporarily or permanently.

In this blog, we will see the impact of coronavirus pandemic on the real estate market and how people are coping with it.

How Is the Commercial Real Estate Affected by Coronavirus?

There are various purposes for which people use commercial property. From retail spaces to office buildings and storage facilities, businesses use commercial properties for multiple applications. The coronavirus pandemic seems to have affected the entire market.

Hotels and Malls

According to the COVID-19 Real Estate Sentiment Survey conducted by RCLCO, almost 90% of the surveyed people indicated that hotels and regional malls are experiencing “severe” or “dramatic” impacts amounting to more than 10% decline in the revenue. Since these are commercial places that depend on the gathering of 10 or more people, the norms of social distancing and lockdown are sinking these businesses.

Office Buildings

Ever since the coronavirus broke out, remote working is becoming the new norm and only those employees who need physical resources are coming to work. Many companies are moving to smaller office spaces to reduce the rent. On the other hand, some have stopped paying their rent as most employees are working from home.

Moody’s Analytics forecasts a record office vacancy rate of 19.4% by the end of the year. People are beginning to choose convenience and cost-effectiveness, leading to the swift decline of the commercial real estate market 2020. When the businesses aren’t able to pay rents, the owners can’t pay the mortgages and this puts the whole industry in jeopardy.

Industrial Spaces

19% of the people believe that the industrial real estate market has no impact whatsoever by the pandemic. 42% said that the effect is less than 5% of the revenue, while 26% felt the impact is between 5% to 9%. No one felt that the industrial market had a massive impact above 20%.

This is because many industrial spaces come under essential products, which allows them to function without getting affected by the COVID-19 pandemic.

What Happens to the Construction of New Commercial Buildings?

When looking at the real estate investments in commercial spaces, there’s a distinct impact, but it comes nowhere close as the other affected as the other domains. Though the coronavirus and construction industry seems not to bode well, the impact is much worse in real estate than in the construction of commercial buildings.

In the real estate market statistics and analytics survey by RCLCO, a majority of the surveyed people believe that the “projects currently under construction will continue to be able to draw down funds.” Such construction projects can continue to work at their regular pace. 65% of the surveyed people believe that there is sufficient availability for continuing the funds for projects under construction.

However, there’s a common opinion that security capital in the form of equity or debt for new projects will be limited. 

According to research published by ConstructConnect, there was a 10% increase in the abandonment of construction in March 2020 compared to the previous year. Recently, some of the construction projects seem to be resuming in line with the demand.

Wrapping Up

Many businesses are coming to terms with the fact that one cannot put their work on hold for the pandemic. So we are noticing a slight increase in commercial real estate, at least for businesses resuming the work at an increased capacity than the past few months.

At GW Partners of Texas, we offer a complete set of services for real estate management right from asset management to leasing and client accounting services. We have a decade of experience in commercial real estate Austin and can guide in any way possible. If you are looking to rent, lease or buy a commercial space, please call us at 512-852-7930 to get more details on how we can help you.