The COVID-19 pandemic is placing unprecedented pressure on Canada’s commercial real estate market. Reduced demand for commercial space due to quarantines, social distancing requirements, shutdowns and supply chain disruptions had negative impacts on property owners and property management firms, according to ICC Property Management.
With no vaccine or cure for COVID-19 currently available, it has been difficult to distinguish temporary shifts from longer-term market changes. The impact of COVID-19 created a murky outlook for commercial real estate markets, but despite that, some segments of the market fared better than others.
The industrial space was not as affected by the impacts of COVID-19. Many industrial firms are considered as essential services and thus remained open.
As e-commerce continues to increase in popularity, warehouse space has become an increasingly attractive investment. ICC Property Management believes that e-retailers will need more warehousing capacity in the longer term than traditional retailers as they stock more inventory.
With provincial government restrictions shutting down much of the economy, many businesses struggled to make ends meet as they waited for work from home employees to be allowed to return to offices. Surprisingly, according to Altus Group data, vacancies in office space held steady at 9.6% in Q2 of 2020, compared to 10% in the same period last year.
Some employers may decide to maintain remote working and terminate leases or downsize. With 40% of Canadian employees working from home, there would likely be a decrease in demand for office space.
To maintain operations, landlords are instituting cost-cutting measures and sublease arrangements for vacant space while simultaneously increasing spending on health and safety improvements in office buildings.
COVID-19-induced physical and social distancing and quarantines which shut down many non-essential retail stores. This accelerated e-commerce disruption within the industry as a result. Some retailers are adapting to the changes, while others, such as Victoria’s Secret and Pier 1, are closing stores.
However, ICC Property Management noticed that other retailers fared better. They kept their physical locations open, albeit with strict physical and social distancing and safety protocols in place. These include reduced in-store traffic, contactless payment, partitions at checkout, mandatory employee COVID testing and increased cleaning and sanitization.
Shopping malls are actively trying to attract essential retailers such as grocery stores, pharmacies, postal or shipping businesses, dollar stores and restaurants to fill vacant space.
Most retail landlords had to implement deferred rent relief in order to prevent vacancies and maintain operations. According to an Altus Group survey in July 2020, 43% of retail landlords collected less than 70% of the rent due in April and even less in May.
The impact of COVID-19 pandemic hit the lodging sector the hardest, according to CBRE. Moratoriums on business travel reduced demand for hotel stays, which led to alternatives such as video and teleconferences.
In the longer term, some businesses and other stakeholders may find technology sufficient to provide high-quality business and education at a lower cost, with less in-person contact risk.
To survive this pandemic, commercial property owners, landlords, and property management firms such as ICC Property Management will need to:
- Diversify sources of revenue
- Focus on the commercial tenant relationship and experience
- Pursue digital strategies to create leaner operations and provide contactless service
Individual firms’ abilities to weather this crisis depends on how they respond to the industry’s immediate challenges.
ICC Property Management is Toronto’s leading property management company. For over 20 years, our firm established a reputation for performing all functions for our clients with diligence, integrity, cost-effectiveness and personalized care. For more information about our services, please contact us today.
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