The Effect of COVID-19 on Commercial Real Estate

The Start of the Pandemic

As the COVID-19 pandemic began, the first places to feel the impact were restaurants, gyms, performance spaces, entertainment venues, and independent stores. However, commercial real estate hung on, largely due to lessors who preferred to let their tenants keep space at lower prices rather than have to try to rent out or sell empty buildings during a worsening health crisis.  

Initial Effects

But as with any economic downturn, the effects often come well after the initial shock. In 2021, commercial building owners are beginning to see significant downturns. More large and small companies have decided to move out of their offices and work from home, the travel industry is decimated and full of empty hotel rooms, and even more people are shopping online, meaning large retail centers like malls are struggling to stay afloat, even after a holiday surge 

A Debt Time-Bomb

Worse, more than $400 billion in debt on commercial and multi-family buildings matures next year. Defaulting on these buildings or owners declaring bankruptcy could tank the market even further. A community’s tax base is often dependent on commercial buildings, so losing them could mean less money for cities and towns. And if multiple buildings of this type start defaulting, there will be a huge strain on the banking system 

Is this an inevitable disaster? Not necessarily. Congress has already proposed measures that allow banks to work with delinquent borrowers until the end of 2021. Vaccinations could also assist in encouraging more people to return to shopping malls and office buildings. Hopefully, things will begin to look brighter soon.  

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