Partner at Holden Legal Group, a NJ and NYC law firm focused on business and real estate law.
The coronavirus has prompted big changes to the commercial real estate industry. Despite current downturns, industry professionals must look to the future and understand that commercial real estate will eventually bounce back. There will be ample opportunities for investors to adapt and innovate to meet new demands in retail, office space and housing sectors.
As a partner at a law firm that specializes in business and real estate, I believe that whether you’re ready to make a purchase now or are still debating if it’s the right time, it is important to look ahead and think about how you can adapt to, rather than fight against, emerging real estate trends. This article offers four forward-thinking tips for purchasing commercial real estate in fall 2020 and provides some suggestions as to what I think the future might hold.
1. Look at consumer behavior.
The valuation for a commercial property comes largely from demand. Investors looking to purchase commercial real estate need to recognize the retail demands that Covid-19 has created, along with current demands that might be subsiding now or in the near future. For example, Covid-19 has increased e-commerce traffic. Even once the pandemic ends, consumers might still be wary of shopping in brick-and-mortar stores both because of health concerns and because of the relative ease and comfort of shopping from one’s own home.
Luckily, there are still commercial property needs that come with a virtual world. The internet does not exist in a vacuum, after all, and items that we see online do not magically transport themselves from the screen to our front door. Large data centers, warehouses and shipping facilities are all needed to maintain a streamlined supply chain and optimize the customer experience.
2. Analyze new workplace dynamics.
U.S. office space saw negative absorption rates for the first time in a decade as companies began keeping workers at home and became more conservative in their expansion plans. While absorption rates might increase in the upcoming year, investors and developers should think carefully about new office demands that the pandemic will create, even once its most immediate effects have passed.
For example, some offices might decide to decentralize their operations and maintain a single headquarters while expanding to suburban hubs that are more amenable to social distancing and can accommodate workers and clients from a wider geographic area. Likewise, the actual design of new office spaces will be a factor for investors and developers. Single-story buildings could prevent elevator bottlenecks that force employees close together, and open-space floor plans might become less trendy as people become more aware of office hygiene and personal space practices.
3. Use technology to boost current and future investments.
From my perspective, Covid-19 could create new demand for certain technological assets in the home, workplace and retail environments as well. Outfitting a building with advanced HVAC filtration, for example, can make commercial spaces more competitive, particularly large retail spaces where consumers are spending a lot of time indoors.
In the home and office, using smart technologies to control heating and cooling and even lights could help to reduce the number of potentially germy hands fiddling with light switches and thermostats. As time goes on, more technologies will certainly infiltrate the market. Stay up-to-date on the latest offerings to remain ahead of the curve when furnishing your properties.
4. Assess your risk adversity.
It’s tempting to invest time and resources into designs with proven demand. Covid-19 has created new market demands, however, that are largely untested. Those considering purchasing commercial property in fall 2020 will need to assess their risk adversity given the downturn and uncertainty in the economy. We know that the pandemic will reshape the commercial real estate industry, but we are years out from understanding exactly how. Thus, investors will have to be both forward-thinking and cautious as they test the market with new innovations and ideas.
For many, this might not be the right moment to begin acquiring new assets, particularly if resources are already strained. For others, a riskier investment that comes with the chance to be early — a leader in the redesign of the commercial real estate world — might be enticing. Keeping open channels of communication between you and your financial advisers will help you make the right decision.
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.