COVID-19 is impacting businesses around the world. From immediate closures, to restrictive reopenings in some areas, many industries are struggling to keep their businesses afloat during the pandemic. Over the past few months, the way we live and work has drastically changed. Since many businesses were forced to close their doors, the impact on the commercial real estate industry was felt almost immediately. Learn how COVID is impacting the commercial real estate industry, and how you can find the silver lining.
Immediate Downturn
COVID-19 was declared a pandemic in mid-March, and our lives and businesses changed overnight. While different property types have been impacted in different ways, everyone has felt the pressure in some way or another. Retail centers have been either closed or been severely restricted due to government regulations, resulting in tenants being unable to make their rent payments. Industries that rely on travel and tourism have completely stopped due to widespread travel restrictions. By some estimations, over 40% of hotels are now in mortgage default. Professional services, such as barber shops and nail salons have been closed for several months, forcing many small businesses to shut their doors for good and landlord’s dealing with the loss of income from those tenants. While retail and hospitality commercial properties have experienced immediate impacts from closures and social distancing regulations, the office sector is taking a hit as well. Thousands of employees left their offices in March, and have yet to return with many businesses permanently allowing employees to work from home.
Business In Demand
While the retail, hotel, and travel sectors have sharply declined since March, there are some industries that have seen a huge spike in demand. E-commerce, such as Amazon, grocery stores, and pharmacies, are all responding to the increase in sales. Although supply chains have been disrupted, they are prioritizing food, household essentials, sanitation, and healthcare related items due to the surge of demand.
Spotlight On Office and Retail
In the commercial real estate industry, the spotlight is focused on the office and retail sectors. While many companies are struggling to pay their rent, and businesses are trying to renegotiate their leases, many are wondering if the need for office and retail spaces will decline. Retail stores have pivoted their business models to sell their products online. Offices are utilizing technology so employees can work remotely from home. With the increase in demand for online resources, it’s very possible that these sectors will see a decline from users - at least in the short term.
Looking Forward
The way that people use commercial space in the future may be drastically different than it was prior to COVID. Restaurants are now offering more take out options; office workers are getting accustomed to working from home; and shoppers are enjoying the convenience of online orders and curb-side pickups. The “new normal” will vary by sector, but commercial real estate still looks like a solid investment opportunity. Investors are taking advantage of the new opportunities in the market and are making educated decisions based on the impact of COVID-19.
Responding To The Crisis
At Fortress Equities, we believe that over the next 18-36 months, there will be opportunities to buy assets at a discount as a result of the shifts in the industry. In response, we recently announced the Fortress Equities Real Estate Value Fund LLC. The Fund was formed for the purpose of investing in commercial real estate opportunities that will become available as a result of the COVID-19 pandemic. The Fund’s primary objective will be the acquisition of well-located distressed real estate, value-add opportunities, non-performing debt, and the development of credit backed single tenant properties in the western United States, including California, Nevada, Arizona, Oregon, and Washington. For more information and for current investment opportunities, please visit the Fund website.