Commercial Real Estate differs from Residential Real Estate as the property is used exclusively for business and income-generating means rather than for living purposes. A piece of Commercial Real Estate is essentially a property that has the potential to generate profit through capital gain or rental income.
There are four main classes of commercial real estate: office space, industrial, multi-family rentals and retails.
The pandemic has brought great uncertainty to commercial real estate.
Initially, industry analysts believed that commercial office real estate was in danger because demand for space was dramatically diminished by social distancing, layoffs, quarantines and remote work. Major corporates thought that working from home would stay: Google decided to opt out of a new office in Ireland and Pinterest paid $90million to terminate a San Francisco office lease. Banks such as Nationwide and Morgan Stanley were reported to be reviewing their global office needs.
However, countless surveys have revealed that workers would like to, at least in part, return to the workplace. There is therefore still demand for office space, but now for different types of amenities. In order to accommodate flexible working, companies need shared and collaborative workspaces. Many companies are also seeking more flexible lease terms. There is also a focus on using space which prioritises hygiene. Businesses are demanding high indoor air quality and greater touchless technologies.
Out of the commercial real estate properties, retail has struggled the most throughout the pandemic. As retail footfall has fallen, many stores and outlets have been forced to close and negotiate a reduction on or cancel their existing lease agreements. The Centre for Retail Research estimated that 2020 saw over 15,500 stores closures in the UK as a direct result of Covid-induced administration or CVAs (company voluntary arrangements). The picture is similar across Europe. France has suffered more than 12,000 store closures due to Covid-19 too.
The one traditional brick and mortar retail exception is supermarkets, who despite strains on their ecosystem, have enjoyed increases in their profits. 2020 supermarket logistics space take-up has nearly doubled on 2019. Recent shifts to online shopping have also presented supermarkets with an opportunity to repurpose their existing retail space. During the pandemic, many converted under-utilised retail floorspace into micro-fulfilment centres.
Industrial real estate has seen the largest growth in demand and investment over the pandemic. Investors have remained active in the market with warehouses and storage for e-commerce marking notable areas of growth.
Multi-family rentals have struggled, with many assets involved in the hotel and hospital industry. That said, the UK multi-family sector saw a record high investment of £3.5 billion across 2020, up 30% from 2019. Canadian real estate investment and management group Realstar was a significant contributor to this acquiring a portfolio of Multifamily and Student Housing, worth over £570million.
Loading More Content