For Commercial Real Estate, It's Survival Of The Fittest - And Most Creative

The coronavirus has effectively pulled the bottom out of the commercial real estate market in many cities. Just as a massive new supply of office space is hitting the market, demand has fallen off a cliff, by close to 100% in some places.

Property managers need to do everything they can to stand out in this tremendously competitive environment. That means adapting quickly to the new need for more space per employee, allowing flexible terms, and providing extra amenities that give tenants more of a turnkey experience.

The best managers are borrowing from the co-working model to provide businesses with an experience that merges hospitality with a traditional working environment. They’re now offering interior design services, high-end furniture, food and beverage offerings, and high-speed internet, among other perks.

At the same time, they’re having to reimagine their spaces and services for the COVID-19 era. Some companies that were planning headquarter buildings for hundreds of people are now looking at filling that same space with a third of that number to reduce density. Among other changes being considered are wider corridors with one-way foot traffic, better air filtration, and touch-less elevator and other controls.

The office is set to become more of a hub than a permanent working location as companies rotate their employees and allow many to keep working from home.

Property managers can increase their appeal to tenants in this environment by re-designing spaces to allow for distancing and providing guidance for a safe return to work. RXR Realty, for example, is developing an app to allow workers to monitor social distancing and request services like cleaning.

Of course, all these bells and whistles will cost managers money at a time when revenues are collapsing. But the investment can be worth it to attract quality tenants and the cost can be baked into higher rents down the road.

Although multi-family residential managers haven’t seen the same collapse in demand, they’re also facing new pressures related to the coronavirus crisis.

The restrictions on physical encounters have required managers to get up to speed quickly on technology tools that allow 3D walk-throughs and other ways of showing properties remotely.

Like managers of office space, they will also need to compete harder for tenants by providing more amenities and services. The most innovative providers are adding elements that create a sense of community such as classes, events and work-spaces.

In the vacation rental space, it’s no surprise that urban markets have been mostly destroyed by the pandemic. But that’s led to an expanded opportunity for vacation rental managers in more remote parts of the country that are perceived as safer.

Hundreds of thousands of New Yorkers, for example, are reported to have left the city, and many of them don’t have second homes to go to.  Airbnb officials also say they are now seeing more nights booked for U.S. destinations than at the same time in 2019, attributed to greater interest in short trips from bigger cities to small locations that can be done on one tank of gas.

In conditions as rough as these, and with no clear imminent resolution to the health crisis, a growing number of properties and real estate-related companies are inevitably going to become distressed in the coming months.

For those not able to innovate or invest in themselves, continuing to operate at similar occupancy levels and pricing is going to be an increasing struggle. Finding tenants to rent lower-quality spaces if demand eases severely will be nearly impossible.

Owners will have a very important decision: invest or find a partner to do so. For those able to invest, this will be an opportunity to gain market share and for those that do not, new struggles may emerge.

Ariel Maidansky is the co-founder and CEO of Envizzo, which provides design and furnishings for commerical, residential and office spaces.