Commercial Real Estate Sector
A Landlord and Tenant Playbook
The commercial real estate (CRE) market is currently in a state of flux, with mixed messages circulating regarding the severity and longevity of the implications from Covid19. In essence, at this point it is difficult to determine exactly when this crisis will ease or when any degree of “normality” will resume in the market.
Whilst the CRE market remains a comparatively attractive and longterm secure investment, strategic decisions will need to be made by key stakeholders in order to recover and thrive from this crisis. The Deloitte Real Estate Advisory team have prepared a brief playbook to support both landlords and tenants across the CRE sector on actions they will need to take across a variety of current challenges.
Key impacts of Covid19 on the primary CRE sectors:
There has no doubt been a shift in the retail industry as a whole and landlords may need to consider alternative uses on certain property types outside of the main high streets. Tenants are currently experiencing high exposure to staff, inventory and bricks-and-mortar costs and significant restructuring of their cost base will be required. Many retailers have been effectively non-operational for a significant time, and are withholding rental payments in order to survive. A phased or protracted return to normal footfall levels will also prolong problems.
The office sector is less likely to experience large scale impacts. Operating either at full capacity, or in many cases at a reduced remote working presence, it will experience primarily economic impacts. Commercial office and industrial occupiers continue business activity but are incurring operational costs, with exposure to reduced income generation. Technology is crucial to occupier survival, and the ability to work from home will have lasting impacts on the internal operation of the office space, but will likely strengthen the office as a place to work; a social, collaborative and interactive destination for employees.
Supply chain management has been disrupted. Logistics and supplies will remain in demand albeit with reduced tertiary activity due to economic deflation.