For years, investors have regarded commercial real estate as a better investment plan than corporate bonds. The reason for this is that real estate has proven to have better returns and less risk. However, this changed in 2018 due to the COVID pandemic that hit commercial real estate especially hard.

The pandemic had various impacts that lead to a decline in the market. Below is an overview of the significant impact on the commercial real estate market.

Short-Term Rent Pains
Data collected from commercial real estate companies such as Brookfield Property Partners shows clearly that the market fell in late March. The pandemic saw tenant bankruptcies, rent holidays, rent deferrals, and other rental nightmares come true. Additionally, health guidelines surrounding the COVID pandemic changed the tenants paying needs.

Aspects such as demand destruction and temporary relief measures gave immense bargaining power to even a non-paying tenant. Retail rents were also hard hit as most customers shifted from brick-and-mortar to online options such as Amazon. Despite efforts of reduction and pausing of rent, it is unlikely that such businesses will survive.

Long-Term Cultural Shifts
Although the short-term effects seem dire, the primary concern is the long-term shift of businesses’ approach to renting space and leasing. Due to the pandemic, most businesses were forced to be innovative and develop remote working options. The optimization of this idea is most visible in the tech industry, where most companies consider permanent remote working as the best option.

This remote working option has received support from online platforms such as Slack Technologies and Zoom Video Communications. Similarly, restaurant businesses are looking for ways to cut on rental space. Most are considering shifting to pick-up and delivery options, where they will not need rental space.

Thriving Sub Sectors
Although most real estate sectors deteriorated due to the pandemic, some sub-sectors kept thriving. Sub-sectors like e-commerce related warehousing, self-storage, and rental storage leveraging pharmacy and grocery have continuously thrived despite the pandemic. These sectors are highly unlikely to experience the pandemic effects since the lockdown only accelerates their demand.

In conclusion, the commercial real estate sector has had it rough ever since the emergence of the COVID pandemic. This has elaborated itself in the declining leasing and rental fee. Despite the efforts to stabilize the industry, some of the effects might take longer to fix.