By Meghan Hall
COVID-19 has no doubt produced a pause throughout the commercial real estate industry as companies evaluate their need for space—and their desire to commit to new leases. After an inevitable pause in March, however, a new survey released by CommercialCafe and Property Shark, combined with new data from Google Trends indicates that interest in office space rose across April and May. In its report on the data, CommercialCafe states that it is a sign of optimism in the industry moving ahead.
“There is a certain delay that has insulated the commercial real estate industry so far from the full force of the pandemic’s impact. For instance, many of the deals we’ve seen close since March have largely been negotiated before the lockdown,” explained Diana Sabau, author of the survey at CommercialCafe. “So, the steady growth of commercial listings searches suggests a certain optimism in the ability of the market to ride the worst effects of this crisis out. And presently, Google Trends data for commercial real estate-relevant terms over the same time frame confirms this trend.”
The survey and data show that searches for commercial office space showed the steepest decrease between March 15th and March 21st, when searches declined by 27 percent. In the weeks since, searches for office listings have slowly increased, with the turning point coming at the beginning of April. From April 5th to 11th, commercial listing searches began to increase. The following weeks saw seven percent or eight percent increase, save for the week of April 26th, which saw only a three percent increase in search activity. According to CommercialCafe, the uptick in searches regarding open office listings points towards signs of recovery.
Perhaps more promising, however, was that many businesses stated they would still commit to a lease if it lined up well with their business needs. 44 percent of respondents to a CommercialCafe study regarding the state of the market stated they would sign a lease for office space should they find the right fit. 28 percent of those surveyed were undecided as to how they would move forward, while an additional eight percent responded that they were currently looking at changes in the office market before making decisions. Eight percent of those surveyed said they were still looking, although less actively than before COVID-19, and 11 percent of respondents stated they are postponing searches until the end of the epidemic all together.
“While there has been no shortage of expert insights and even extensive guidelines for the office space of the future, the fact that a large percentage of respondents would be ready to commit is proof that businesses haven’t thrown out the idea of having an office overnight,” stated Sabau. “What might constitute ‘the right office’ is likely to change, even more so than in previous years because of the pandemic, but businesses will still want to occupy a physical space.”
CommercialCafe also examined how tenants expect leasing negotiations to change as a result of COVID-19. However, nearly half of tenants expect leases to remain the same, a sentiment which is likely to hold in markets with strong property fundamentals prior to COVID-19, such as the San Francisco Bay Area and Puget Sound. 49 percent of respondents replied that leases will likely stay the same; 25 percent said they expected their contracts to include payment deferral clauses, likely as a response to many non-essential businesses ceasing activities as a result of the pandemic. An additional 19 percent of those surveys replied that business should be protected from eviction if their ability to pay rent is impacted by situations similar to COVID-19 in the future.
Overall, CommercialCafe believes that the industry is gearing up for a post-COVID-19 world, given data that suggests tenants are looking to jump back into the market again. How leases, office space and office use will evolve in the future, however, has yet to be defined.
“…The real estate industry is eager to get back to business, although it is increasingly aware that it won’t be ‘as usual,’” said Sabau. “Social distancing and additional measures that need to account for the air-borne transmission of COVID-19 will translate into design and investment choices that will reconfigure new office spaces and corporate culture.”