Commercial real estate may never be the same after the novel coronavirus pandemic.
With most office workers in the U.S. now working from home, demand for office space could be permanently damaged, according to Barbara Corcoran, Shark Tank judge and founder of the Corcoran Group, a New York-based residential brokerage.
“It [the pandemic] is going to bring down the value of all commercial real estate overnight. I really don’t believe we’re gonna go home to what we had before. It’s totally changed,” said Corcoran. At the onset of the coronavirus experts thought commercial real estate would hold up, but the pandemic proved more severe than previously predicted.
Demand for office properties will drop, said Corcoran, since companies have now practiced working from home and, in many cases, employees will prefer to skip the commute. With fewer on-site workers, companies will have more office space than they need and will aim to reduce their square footage, she said.
“The people who have been working from home have realized they’re not so crazy about sitting in the traffic to go to work everyday,” she said. “Businesses are gonna realize they have way too much space to utilize and they’re going to want to renegotiate their leases. And the landlords are going to have to deal with them.”
Malls and retail already ‘half dead’
Shopping centers will fare even worse than office properties, said Corcoran, citing retail real estate’s vulnerability pre-pandemic.
“The only other portion of the real estate market that I think is going to be hit even worse is, of course, the shopping centers,” said Corcoran. “They were half-dead when we came into this whole debacle with them on one leg. The other leg is gonna be cut out, so I don’t, I can’t even envision what’s going to happen to the shopping centers. I just can’t imagine.”
The increased reliance on online shopping during quarantine could spell disaster for these retailers. In fact, many retailers have already had trouble paying rent during the pandemic. U.S. consumer activity plummeted in March, core retail sales dropped 3.1%, compared to only 0.2% in February, while online core retail sales rose 3.1% in March.
“The main impact of online purchases is on large retail locations… More and more shopping is shifting online. It is an overall industry shift,” said Brian Watson, founder and CEO of Northstar Commercial Partners, a Denver-based commercial real estate investing firm, adding that physical retail stores that succeed tend to be downtown small businesses and retailers that offer shoppers an experience.
Sarah Paynter is a reporter at Yahoo Finance. Follow her on Twitter @sarahapaynter
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