How will Covid-19 affect the future of commercial real estate? It’s a multibillion-dollar question that’s been debated since the start of the pandemic.
With many businesses still plotting their returns to the office, the answer remains to be determined.
But experts say the effects of Covid-19 are likely to reverberate in the industry for years to come, and commercial lease negotiations — particularly those over the next year — are likely to provide some early clues about the pandemic’s effects.
Industry experts have a few ideas about what to expect. Especially in the short term, experts say it’s likely tenants will have more leverage to negotiate terms. That’s particularly true for larger tenants and those that draw other tenants or customers to a property.
One potential area of focus is specific clauses in leases that could provide protection in the event of a future pandemic.
Maria V. Bernstein, a real estate attorney at San Francisco-based SSL Law Firm LLP, expects more discussion around force majeure or unforeseen circumstances clauses in the wake of Covid-19.
As shutdowns and shifts to remote work dominated the early days of the pandemic, Bernstein said many companies rushed to review their force majeure clauses, generally finding little to no relief.
In the aftermath of the pandemic, Bernstein said it’s likely many tenants will be negotiating those clauses to create an avenue for relief in future situations like Covid-19.
She also expects companies to take a closer look at condemnation clauses and their potential role in a scenario where the government shuts down businesses or limits capacities.
Bernstein said condemnation clauses often say that if there is a “taking” by a government, then the lease is automatically terminated.
In a case where a government limits capacity to 25%, for instance, she said a good argument can be made that a government took 75% of the space, which could create leverage for potential relief.
“Everybody looked at force majeure. People looked at the environmental clause. People even looked at casualty. Those clauses helped almost no one. I’ve looked at it,” she said. “But the condemnation takings clause has given me leverage.”
When using condemnation clauses to find leverage, Bernstein said the use clause is very important.
“The narrower the better for tenants, but in negotiating leases, the broader the better,” Bernstein said. “Since we don’t have crystal balls, this is something that probably won’t change in lease negotiations, but landlords can take comfort when granting broad use rights that this may ultimately benefit them should we face future catastrophes that lead to the type of government-mandated shutdowns we have just seen.”
Tim Blair, president of Chicago-based CCIM Institute, a global commercial real estate investment education group, said he expects to see more interest in common-area-maintenance fee caps and lease structures that allow tenants to benefit from decreased maintenance costs. As we’ve noted, CAM charges are an area where landlords are seeing more scrutiny.
Blair said Covid-19 will likely accelerate the trend of triple-net leases for office buildings — something that was already becoming more common in newer buildings in larger cities.
Those arrangements allow landlords to allocate specific expenses to specific office suites. In a shutdown situation like Covid-19, that would allow tenants to benefit from an expense reduction — a benefit many tenants didn’t have during the pandemic.
Blair said he also envisions more tenants will push for being able to opt-out of certain services, such as janitorial expenses, in a future scenario with offices being shut down for a long period of time.
Evelyn Ward, Houston-based vice president of agency leasing at Transwestern, envisions health and wellness amenities will be a more prevalent discussion between tenants and landlords in lease negotiations. But she’s not referring to gyms or outdoor spaces.
She said more tenants will be asking about specialized air filters, touchless amenities and fixtures, and enhanced janitorial services, among other options.
“It’s a constant conversation, and it’s not a one-time thing,” Ward said. “A lot of it is because of what’s being demanded by the employee.”
She said health and wellness considerations are likely to become an expected standard like a conference room.
Ward said it will likely be a particularly heavy focus in the short term, as companies prioritize creating a safe and welcoming environment that makes it easier to bring workers back to the office.
“HR has been a part of the leasing decision forever. I think (Covid-19) just ratchets it up to another degree,” Ward said.
*Article courtesy of Philadelphia Business Journal
For more information about New Jersey or Philadelphia industrial space, New Jersey or Philadelphia retail space, and New Jersey or Philadelphia office space or other New Jersey and Philadelphia commercial properties, please call 856-857-6300 to speak with Jason Wolf (jason.wolf@wolfcre.com) at Wolf Commercial Real Estate, a leading New Jersey and Philadelphia commercial real estate broker that specializes in both New Jersey and Philadelphia office space, New Jersey and Philadelphia retail space, and New Jersey and Philadelphia industrial space.
Wolf Commercial Real Estate, a full-service CORFAC International brokerage, and advisory firm, is a premier New Jersey and Philadelphia commercial real estate brokerage firm that provides a full range of New Jersey and Philadelphia commercial real estate listings and services, property management services, and marketing commercial offices, medical properties, industrial properties, land properties, retail buildings and other New Jersey and Philadelphia commercial properties for buyers, tenants, investors, and sellers.
A New Jersey and Philadelphia commercial real estate broker with expertise in New Jersey and Philadelphia commercial real estate listings, Wolf Commercial Real Estate provides unparalleled expertise in matching companies and individuals seeking new New Jersey and Philadelphia office space, New Jersey and Philadelphia retail space, or New Jersey and Philadelphia industrial space with the New Jersey and Philadelphia commercial properties that best meets their needs.
As experts in both Philadelphia and New Jersey commercial real estate listings and services, the team at our commercial real estate brokerage firm provides ongoing detailed information about Philadelphia and New Jersey commercial properties to our clients and prospects to help them achieve their real estate goals. If you are looking for New Jersey or Philadelphia office space, Philadelphia or New Jersey retail space, or New Jersey or Philadelphia industrial space for sale or lease, Wolf Commercial Real Estate is the New Jersey and Philadelphia commercial real estate broker you need – a strategic partner who is fully invested in your long-term growth and success.
Please visit our websites for a full listing of South Jersey, Philadelphia, and New Jersey commercial properties for lease or sale through our Philadelphia commercial real estate brokerage firm.
