The COVID-19 pandemic has had a major impact on the livelihood of residential and commercial landlords, as social distancing guidelines and stay-at-home orders have shuttered dining rooms, shopping centers, and office buildings. But this impact, to commercial leases in particular, has been uneven. While in-person retail shopping has slowed to a crawl and shifted to the online world, for example, demand for warehouse space has exploded.
Current trends, however, won’t last forever. Looking ahead and making decisions for the future is no easy task. Our outlook for commercial leases in 2021 looks into which types of properties are poised for a comeback, the kinds of property modifications that are in demand, available relief for commercial landlords, and more.
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Which types of commercial leases and properties are positioned for a comeback in a post-COVID recovery, and which will take more time?
The pandemic didn’t hit the economy equally. Many businesses suffered downturns, but those in niches serving pandemic-related needs saw strong growth in many cases. Therefore, some commercial landlords were better able to collect rent than others. The short-term impacts from COVID-19 and long-term changes to the economy also mean that some landlords are better positioned for 2021 than others.
Consider the following types of properties.
- Hotels. Travel is at a virtual standstill because of both legal restrictions and extremely low interest during this time. Even when things get back to normal, families that took a financial hit won’t be able to afford leisure travel right away. Businesses are also likely to continue to use video conferencing to replace some of their previous travel.
- Office space. Some expect a permanent decline due to the work-from-home shift, while others expect a rush back as people clamor to leave their homes. In many situations, it may depend on a given property’s flexibility and ability to rightsize for its tenants’ current needs.
- Retail. Retail has also likely seen a permanent change, with so many small businesses closing and customers more accustomed to online shopping. However, spaces that offer unique experiences or support the pickup of online orders will likely increase.
- Warehouses/shipping centers. Warehouses and shipping centers have been overwhelmed during the pandemic. With a current undersupply and expected permanent growth in online shopping, their outlook should remain strong.
Are there any state or local commercial eviction moratoriums or rent freezes in place during 2021?
Nationwide, eviction moratoriums and rent freezes have mainly addressed residential tenants. Commercial tenants have largely been left to negotiate with their landlords. One exception is New York’s ban on commercial evictions that has been extended several times throughout the pandemic and currently ends September 20, 2021. Some local jurisdictions in California have also provided various levels of protection to small businesses and other commercial tenants.
What types of financial relief are available to commercial property owners?
The Small Business Administration’s (SBA) Paycheck Protection Program and Economic Injury Disaster Loans have been the primary source of COVID-related financial relief for businesses. While some funds must be used for specific purposes, putting SBA funds towards those expenses frees up additional cash for other expenses. As with eviction regulations, foreclosure moratoriums differ by state and locality.
Renegotiating your Commercial Lease may help you improve your cash flow. Commercial landlords should also take advantage of current COVID tax relief provisions and stay informed about new federal laws in the works that may provide additional relief in the coming months.
What types of property modifications are seeing more demand during the pandemic?
It may be a good time to consider renovations if you currently have unoccupied spaces. At a minimum, this could include routine refurbishments that you may struggle to keep up with when your property is fully occupied. However, you may also want to reposition your commercial spaces for expected changes in demand and tenant preferences. Modifications you may wish to consider include:
- Flexible interior spaces that you can expand or condense to match your tenants’ needs.
- More private workspaces versus open areas.
- Improved ventilation systems.
- Accommodations for drive-through or drive-up services at your retail locations.
- Exterior dining or seating areas.
- Private entrances or improved interior traffic flows to maintain social distancing.
Get prepared for the future of commercial leasing
Visibility during the pandemic is murky at best, but signs of what to expect as a commercial landlord are beginning to materialize. As you plan ahead for 2021, now is also a good time to make sure your Commercial Lease Agreements match current conditions. Ask a lawyer for help with current best practices or what you should include to protect yourself.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.