Pandemic Gave Commercial Property Tenants Upper Hand In Rental Deals

USA – Real estate experts revealed that the COVID-19 pandemic has taken some of commercial property landlords’ long-held advantage and given it to tenants, reported CBS News on Friday evening (25 March, SGT).

Across the United States, rental activity has fallen amidst the virus outbreak, as employers and staff rethink the traditional 5-day work week.

For instance, the office availability rate in Midtown Manhattan has reached almost 18 percent from just 10 percent prior to the pandemic, based on data from CBRE, while the overall office availability rate across the country climbed from 18 percent to 22 percent.

In turn, the higher availability rates are shifting the power dynamics of commercial real estate deals in favour of tenants for various kinds of commercial properties from retail spaces, restaurant spots, to 10,000 sq ft office spaces.

“Everyone knows central business districts (CBD) are far lower-traffic areas than they used to be and we feel like even with office occupancy returning at a slow pace, it’s going to be a long time, if not maybe forever, until there is 5-day office occupancy,” said Peter Braus, Co-founder of New York City property company Lee & Associates.

“I think in terms of whether it’s a tenant’s market or landlord’s market, clearly we are still in a strong tenant’s market for most of the office sector.”

So, how are tenants taking advantage of their greater bargaining power over commercial property landlords?

For one, they can expect huge discounts on retail premises and offices, except for premium office spaces that continue to attract interest from employers seeking to lure employees to return to their brick-and-mortar workspace.

“People say if they want to continue pay for office space, they want amenities in building — things like a gym or a fancy restaurant. They really want the best if they’re going to pay through the nose for it,” noted Braus.

Prior to COVID, commercial tenants signing new leasing deals could usually expect discounts of up to 10 percent, said Mike Watson, a New York City property agent.

“Right now, 20 percent off is pretty achievable. Depending on the market, the city and the credit of the tenant, you can probably even get 25 percent off.” However, these discounts are not as hefty as those offered during peak COVID-19 periods.

“You may have missed the absolute peak (for discounts), but if you know where to look and can take advantage of good spaces in the market, you can still come in and get a deal,” added Watson.