Covid-19 Impact on Office

Q&A with Albert M Lindeman, SVP, National Council Chair Office Properties & Jeffrey C. Albeen, CCIM, EVP

What’s going on, in general, in the area of office properties as a result of Covid-19?

From an operational perspective, many office buildings are in states of partial or total shut-down due to a combination of government action forcing the issue and decisions made by their tenants to shift to a remote work model. Many landlords are dealing with management challenges including securing physical spaces and maintaining much higher levels of janitorial service for operating buildings.

What challenges are office properties experiencing in the days and weeks due to Covid-19?

Some buildings have been required to notify non-essential tenants to not come and work at the building. As a result, tenants have begun to request rent relief and are reviewing the force majeure clauses to determine if they can mandate rent relief. Additionally, we have seen month-to-month tenants give notice to vacate and all active negotiations have either been cancelled or in the best-case, delayed. Absorption will turn negative and demand will decrease, rent concessions will become common place as it will turn into a tenants market. There will certainly be a disruption in cash flow for owners. They should be looking at strategies to address this issue as it relates to operating expenses and debt payments.

What challenges do you see for office properties in the long-term due to Covid-19?

There may be some limited challenges as companies re-evaluate workplace environments. They will evaluate the results of efficiencies of telecommuting and work-from-home activities, making adjustments accordingly to reduce cost.

What opportunities are there for office properties in the near-term due to Covid-19?

This is a great opportunity for the landlord to be proactive by reaching out to tenants in order to better understand their worries and needs and to collaborate with them to reach short-term solutions. Doing so will strengthen existing relationships and also establish ones that have not yet been fostered.

What opportunities do you see office properties experiencing in the long-term due to Covid-19?

COVID-19 will likely lead to an extended period of low interest rates, driving yields upward for buyers and maintaining pricing for sellers. In addition, as the market works through its short-term disruptions, new demand will be created in the healthcare space and potentially in the general office category by a move to greater distancing in the workplace. These factors should bring the market back to positive absorption at some time in 2021.

Source: SVN International

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