One of the most comforting things about reality is that crises don’t last forever. However, with some situations, the ramifications that a crisis can cause will be felt for months or even years after it ends.
The impact of the current events on the commercial real estate industry has been hotly debated, especially in what regards the effects of the ongoing pandemic and resulting social distancing rules that have caused a significant drop in demand for office spaces. The question is how deeply the industry will be affected by these changes in the long term.
No one can predict the future, but those with experience can make some inferences to what we can expect in the coming months. We asked 16 professionals from Forbes Real Estate Council their opinions on how the commercial real estate market will be affected. Here’s what they told us.
1. Everything Will Move Online
This crisis has pushed owners to implement having as much as possible done online—from touring properties, touring units, submitting applications, paying rent, submitting work orders and more. If implemented correctly, this should lower the cost of payroll, as well. And for those ahead of the game, it could mean increased occupancy. – Jorge Abreu, Elevate Commercial Investment Group
2. Rise Of Virtual Leasing
People are adjusting to maintaining social distance and aren’t going to actively seek to be near strangers. Innovation in virtual leasing and self-touring systems will become more of a standard as potential renters want to avoid having to do a tour with a leasing agent. I see this being a natural progression for our industry as consumers can do almost everything online now. – Paul Worcester, Simplifyy
3. Accelerated Communications
In uncertain times, communication is essential, especially as businesses think about how to physically reopen. Technology can improve communications between property management and tenants by offering two-way text features for real-time communication, greater transparency with maintenance requests and more. For leasing, AI leasing assistants can instantly answer prospect queries via text. – Nathaniel Kunes, AppFolio Inc.
4. More Affordable Rental Costs
With innovation, commercial real estate costs will be more affordable. Many people will work from home, and optimizing costs will incentivize offices to remain full for vibrant downtown spaces; otherwise, the rental vacancy rate will be higher. By putting the final customer and the local economy first, rewards will come. Innovation has to focus on costs while maintaining high quality. – Marco Calignano, CALIJUS Investments & Business Management
5. Elevated Efficiency And Transparency
Commercial real estate will witness a much higher level of efficiency and transparency, but the industry will be bombarded with unprecedented access to personal data that can potentially be obtained by unrelated parties. We will notice revised regulations rolling out frequently to keep up with the speed of innovation. – Adrian Provost, LEVEL
6. More Focus On The Resident Experience
Real estate leaders will need to rethink what they provide their residents and tenants. Everything, from safety protocols to technological connectivity, will require a deeper understanding of the resident experience. Technology will be critical in personalizing the experience for customers, and it will give real estate leaders critically needed information on how to meet expectations and then exceed them. – Benjamin Pleat, Cobu
7. An Increase In Underwriting
Moving forward, you will see an increase in underwriting with more intense requirements to ensure success and avoid defaults. Everyone will be more protective of their own stability by an extensive interview process, a financial review and cash reserve requirements. Basically, the old-school way of ensuring you’re a “good guy or gal” will be the new-school way of doing business. Reputation will be key. – Heidi Burkhart, Dane Real Estate
8. Lenders Will Provide More Flexibility And Options
Similar to the period following the Great Recession, lenders will need to be open to creativity to achieve win-win solutions for themselves and their borrowers. Such innovative structures will include splitting a loan into multiple risk tranches, originating subordinate debt such as mezzanine loans or providing preferred/convertible equity to bridge any gaps until normal lending resumes. – Max Comess, Hodges Ward Elliott, LLC.
9. CRE Leading Embracing Automation
Commercial real estate lending, which is a lagging industry when it comes to technological innovation, will need to rapidly adapt or risk being usurped by a new breed of fintech that will emerge. If they have not already, CRE lenders will need to reduce overhead, abandon brick-and-mortar locations and implement fluid sales software and automation to streamline and expedite their application processes. – Noah Grayson, South End Capital Corporation
10. Higher Demand For Industrial Spaces
The Covid-19 situation will drive further adoption of e-commerce in the future, which will require more fulfillment space and a higher demand for industrial properties. Restaurants will also evolve to incorporate omnichannel strategies and attempt to remove third-party delivery in order to maintain margins. – Jason Hsiao, Shaw Investments
11. Shifting To Efficient Office Space And Technology
I believe the commercial real estate industry will become much more efficient in utilizing office space and technology while creating methods to ensure the social and human relationship is not lost in the process. There is a new generation of managers and executives practicing, and I believe they will make this shift much easier and better than previous generations with the same challenges. – Jeff Cline, SVN | SFR Capital Fund I, LP
12. Repurposing Assets Will Move The World Forward
The best innovation comes out of necessity and that’s going to be in the form of repurposing assets. When big box retail began to dissimilate, it was repurposed for self-storage. Now, vacancies in offices will be repurposed into multifamily investments. Retail will reinvent itself more to a take-out mentality and create new dining experiences. Those are the things that are going to move the world forward. – Ari Rastegar, Rastegar Property Company
13. Property/Building Technology Becoming Widespread
Proptech (property/building technology) has been at the forefront of European commercial real estate thought for several years while U.S. tech focused on streamlining paper (i.e., mortgage apps, leases, insurance). Now developers and landlords will be pushed to adopt proptech. They’ll seek HVAC that efficiently delivers more than 15% fresh air every six hours. Elevators will go touchless and the open office will be redesigned. – Kristin Geenty, The Geenty Group, Realtors
14. More Cities Maximizing Traffic Efficiency
Europe has been way ahead of us in terms of maximizing the efficiency of high foot traffic streets by closing off vehicular access to certain areas. This added more shared outdoor seating and also utilized alleyways to allow people to hop from one establishment to another without being restricted to a small, railed-off patio. Thankfully, we are now seeing that some cities have started to implement this. – Robin Bhalla, The Festival Companies
15. More Tech That Identifies Potentially Ill People
As office buildings reopen, expect to see more technologies that identify potentially ill people entering buildings before they make it to their destinations. Similar to how checking IDs in the lobby became the practice for many buildings after 9/11, temperature scans could become commonplace for everyone entering buildings, and those with elevated temperatures could undergo further screening. – Gary Beasley, Roofstock
16. Cleaning Schedules Will Become More Transparent
No one wants to enter a contained space like an elevator or conference room without feeling confident that it’s being regularly disinfected. An app can easily collate employee data about when each space was cleaned. Users can then review the history of each space. With that information at their fingertips, people can feel confide