Trouble in Retail and Commercial letting post-Covid

The COVID-19 pandemic and national lockdowns have certainly changed the landscape of retail and commercial letting spaces, with hotels and retailers being the hardest hit. Hospitality properties, for instance, may take the longest time to recover as travel for both business and leisure has declined. With second waves of the pandemic hitting the US and Europe, travel restrictions are likely to stay in place for the foreseeable future and many may avoid travelling for holidays due to the health risks it poses.

How employees working from home has affected commercial office space rentals

The demand for retail office space has dwindled also as employers have allowed staff members to work remotely during the pandemic crisis and subsequent lockdowns. Many employees successfully navigated this new trend with the help of apps like Zoom and/or Google Meet, and so some business owners are now exploring these work-from-home options on a more long-term basis. This saves  costs as employers won’t need to pay for large expensive office spaces, and they also save on utilities and consumables. Employees benefit too and save both time and money by not travelling into the office every day. This is not good news for commercial property owners because as the demand for retail and commercial spaces decrease, unfortunately so does their value. 

As lockdown eased, did things improve?

As lockdown levels declined many businesses resumed operations and returned to their commercial spaces. That said, non-essential businesses suffered during lockdown and liquidity for many was, and still is a major problem as they manoeuvre to get back on their feet, increase turnover and regain what they lost. Commercially, many small retail outlets and restaurants have been forced to close permanently with some having to give immediate notice at their commercial spaces due to a loss in earning capacity and not having the cash flow to cover their rentals. Even large corporate chains have been hard hit and are struggling to pay the high rentals on their large floor spaces.

How increases in online shopping affect retail 

For obvious reasons, the COVID-19 pandemic has accelerated a shift towards a more digital world. Consumers are relying on online shopping more and more and also spending less. This trend is set to continue well past the finale of the Covid-19 pandemic.

So what does the future hold for commercial and retail letting?

Property owners are not far removed from the struggling businesses that they are leasing to and are greatly affected by their tenant’s struggles. Before Covid, rental escalations were between five to eight percent depending on the lease agreement between the landlord and the tenant. These escalations will likely be a thing of the past as landlords focus on getting quality tenants and avoiding long-term vacancies and the subsequent costs and lack of income. What may happen now is that current lease agreements may need to be re-negotiated and adapted to what tenants can currently afford to spend. 

Huge changes are happening in how people work and how business is getting done. The COVID-19 pandemic will have long-lasting implications well into the future for commercial and retail properties. Now is the time to be resilient and ‘roll with the punches’ as they say. We have to accept these changes and be adaptable to a new way of life and conducting business for the foreseeable future.

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