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Post-pandemic Commercial Real Estate Challenges

On Behalf of | May 3, 2024 | Commercial real estate issues |

In 2019, the commercial real estate economy saw stable growth and the market was strong. Developers were eager to expand, investors were willing to take risks, and loans were readily available to anyone who needed funding.

In a snap, the global pandemic the following year fundamentally changed how people work, shop, and do business. While it is still a valuable investment, commercial real estate faces unique challenges after COVID-19.

What is happening?

The commercial spaces landscape has changed overnight. To keep the business healthy, here are common obstacles commercial property owners must confront:

  • The “Great Office Exodus”: Remote and hybrid work setups became a mainstay in leading industries after the pandemic. This led to employers negotiating for shorter lease terms and downsizing to smaller office spaces because fewer people physically reported for work. This trend will continue in the upcoming years as research shows that the demand for commercial spaces is unlikely to recover to pre-pandemic levels.
  • Shift to online retail: People working from home also mean less foot traffic for stores in dense urban areas. Online shopping platforms continue to disrupt the brick-and-mortar business model resulting in the inflation of retail area vacancies.
  • Costly financing: These high vacancy numbers are causing investors to be cautious about commercial real estate spending. Rising interest rates and increased borrowing costs are also making it difficult for owners to refinance their assets. Additionally, the recent volatility in certain commercial property sectors, like office spaces due to remote work trends, makes it challenging for investors to determine market value.

What can you do?

Adaptation is the key to success in today’s commercial real estate market. You can try to refurbish your commercial spaces for mixed-use development. This caters to the changing needs of businesses and consumers. Revisit your business plan and existing lease contracts. Like all investments, commercial real estate has its own risks and rewards. Talk to professionals before making significant decisions on your property. A proactive approach may help you avoid future legal repercussions and safeguard your business.