The entire year 2020 passed under the motto "social distance. Offices, restaurants, stores, theaters, and cinemas closed for a long time - people tried to stay away from each other. Now, speaking of Russia, many spheres of life are gradually returning to their pre-Victorian state, but there are some niches whose recovery will take several years. One of them is commercial real estate. Which segments suffered the greatest losses in 2020 and how can owners minimize the consequences?
During the first wave of the pandemic, only lazy people talked about disloyal landlords - for example, commercial real estate owners were blamed for the death of the restaurant business. No one paid any attention to attempts to explain that renting out real estate is also entrepreneurship. Now the restaurant industry has already adapted and found new ways to monetize, but for many landlords, the trials are still ongoing.
Real estate is a fairly inert sector. All processes are slow, trends take longer to form and last longer, but the crisis makes adjustments. For example, because of the rapid penetration of e-commerce in the retail real estate sector, it leaped forward two or three years.
The hotel sector, as well as shopping and office centers, have had the hardest time. Rapidly approaching and never ending quarantine restrictions are forcing the owners to look for new ways to survive - now there is no way to do without the anti-crisis measures.
Finding points of growth
The main criteria for profitability of non-residential space are still pricing, loyalty of owners in times of crisis, comfort (basic amenities, security systems, infrastructure) and location.
More about the latter. Location has always been the primary indicator of the profitability of the project, but in 2020 it began to move into second place. In its place is the functionality of the premises: the possibility of their rapid transformation, adaptation for other needs.
Thus, in the U.S. unprofitable shopping centers are repurposed as warehouses, distribution centers and space for e-commerce. A good example is Amazon's announcement of its intention to occupy space in anchor department stores J.C. Penney Co. Inc. and Sears Holdings Corp. vacated during the pandemic. The company intends to use them as checkout points.
In addition, another criterion appeared - health care. It is now mandatory for the premises to have good ventilation, installed sanitizers and introduced other anti-viral measures.
Examine your assets for the demands of the times.
Tips for owners to help improve the profitability of assets:
- Take care of your tenants. This can take the form of improving comfort, introducing anti-coving measures, or reorganizing the facility. A recreation area or additional parking spaces for tenants' employees is a good option;
- Be prepared to compromise. Additional discounts justified by the moment (the ongoing crisis) will help support assets;
- Consider new terms of cooperation. Some companies come with requests for short-term rentals of fully equipped space. This option can be beneficial: due to the increased rental rate of 20-30%, the owner does not lose his income in the event of termination of the lease;
- Reduce the negative impact on the environment. This is expressed primarily in the use of environmentally friendly materials, digitalization of processes, the introduction of technologies that will allow predictive management of the facility.
Olga Koroleva, Director of Asset Management at UFG Wealth Management
Read more on RBC