Possible Long-Term Impacts of COVID-19 on Commercial Real Estate

The ongoing economic contraction caused by the 2019 novel coronavirus has been swift and dramatic. In a matter of months, unemployment has reached Great Depression levels, bankruptcies have spiked, and the U.S. government has scrambled to avoid economic fallout. The pressing question is how, and to what extent, COVID-19 will affect commercial real estate. While it is likely that the long-term impact of COVID-19 will be significant, the short-term effect may be to accelerate sector and geographic trends that were already prevalent before the pandemic emerged.

Retail Sector Trends

Prior to COVID-19, the retail sector was dealing with substantial disruption from online sellers. Department stores were already suffering from low sales volumes. However, the already anemic results fell substantially in the wake of the pandemic. Even "experiential retail" (restaurants, coffee bars, movie theaters, and the like), widely believed to be the savior of brick and mortar retail, has been decimated by COVID-19. In addition to mandatory closures imposed in connection with the quarantine, ongoing social distancing requirements, and the resulting limitations on occupancy, will likely continue to have devastating impacts on these businesses. The viability of these businesses will depend on how long the pandemic requires them to operate at unsustainable levels.

Office Sector Trends

The office sector had also been undergoing shifts prior to COVID-19. Many businesses were opting for more "pods" and open space than traditional closed-door offices to encourage collaboration. However, social distancing requirements and other infection prevention strategies will require businesses to design, or redesign, their space in order to balance the need for collaboration with the health of employees.