Written by: Chris Potts, CCIM
Chris Potts brings over 25 years of experience to the real estate industry focusing on both the leasing and sale of office properties. His vast knowledge of buildings, owners, and market information makes him an expert in the field. Keep reading to get Chris' take on how the COVID-19 pandemic will affect the local office market.
How do you think the COVID-19 pandemic will affect office absorption and vacancy?
Absorption will slow to a crawl for the next few months as brokers have had no demand to show properties with the Ohio Governor’s Stay at Home order. Transactions that were in progress prior to Stay at Home have been continuing to finish to a signed lease or sale about 75% of the time. Vacancy in the immediate next couple of months will be static and then we will see a slow increase in vacancy as employers evaluate how the Stay at Home order impacted their need for office space and employees ability to efficiently work at home.
How do you think the COVID-19 pandemic will affect office rates, TI allowances, term lengths, etc.?
Landlords will have to be more flexible on rates, TI and especially length of term.
The market conditions prior to Covid-19 made it a landlord’s market to push rates, term length, and offer less incentives to gain new tenants. That has now flipped and the tenants have leverage to negotiate short lease renewals given the unknown future of when people will be able to get back in the office and conduct normal business as they did before Covid-19. The financially stable tenant that can commit to a longer lease will be able to receive more incentives now from their landlords.
What types of office properties do you think will be hit the hardest?
Class C and lower end Class B. The tenants in these class of buildings tend to be smaller locally owned businesses that are the hardest hit employers that don’t have the financial depth to withstand the slowdown in business activities.
What have you seen so far with rent relief for office tenants?
Half of the landlords have been willing to work with tenants on the deferment of rent to an agreed upon later date for payment rather than free rent. The other half of landlords have told the tenants to that they need to pay the rent per the lease but are softening more on this position that the Stay at Home order has been extend once and possible it will be extended again. The landlords have been informing tenants that they need to look into Federal Government assistance with the $2 trillion Cares ACT that many small business owners have taken advantage of to make application for payroll assistance and grants.
Is there any impact you’ve seen so far on the office market that has been especially surprising to you?
The optimism of business owners and their confidence that the economy will recover quickly once we can get back to operating with changes for a new normal way of doing business.