Which Commercial Properties Will Most Likely Be Impacted by COVID-19?
The Las Vegas commercial real estate market has been thrown into uncertainty by the global COVID-19 pandemic. Investors are now faced with a series of unprecedented challenges as businesses adapt to the nature of the highly-contagious virus and attempts to mitigate its effects, including social distancing requirements and shutdowns. However, not all commercial properties impacted by COVID-19 face the same challenges. Learning how each sector may be affected by the pandemic can help you make the right investment decisions if you’re thinking about buying commercial real estate in Las Vegas.
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Commercial Office Buildings
As more businesses switch to working at home to cope with the outbreak and ensuing shutdowns, offices are being left vacant. It remains to be seen how heavily this class of real estate is impacted by coronavirus, but at a minimum, it’s likely that some existing buildings will require layout changes to adapt to social distancing requirements, especially if they contain open offices. Depending on how many businesses permanently switch to working at home, there may be a depressed demand for office space over the long-term. We could see business downsizing the office space.
Retail stores have been significantly impacted by COVID-19, both by changes in consumer behavior and ensuing mandated shutdowns. The impact on real properties will be determined by retail consumer demand when the consumer goes back to “normal,” then retail centers will start to recover. While many consumers are now making their purchases online, they often order from retail stores that facilitate curbside pickups. Second-order effects from the pandemic, such as an economic recession, could reduce overall consumer demand.
Hospitality properties have proven especially vulnerable to COVID-19 disruptions, given that their business model is short-term hosting for travelers from, potentially, all over the world. Recreational travel has all but disappeared, and most businesses are replacing work trips with online meetings. Many have also been closed by mandated shutdowns and will likely require changes in layout and potentially even renovations to adapt to the realities of social distancing. With the opening of casinos on June 4th, we will have a strong indication at that time of the recovery length.
As critical infrastructure, healthcare centers have avoided shutdowns, but have experienced added stress, due to their position on the front line of the COVID-19 pandemic. As other sectors face depressed demand, real estate for health care could be a safe haven for investors looking for steady returns. These properties are likely to remain in high demand for the foreseeable future, as it appears unlikely that treatment will arise or the virus will run its course in the near-term.
Supply Chain Properties
Supply chain properties have been less impacted by the current pandemic than other classes of real estate, given their critical position within the economy. While they have occasionally faced shutdowns, many have managed to continue operating at record levels. However, workers in these buildings remain just as vulnerable to COVID-19 as any other, and many businesses in these spaces have yet to implement proper social distancing requirements.
Industrial buildings are subject to many of the same pressures as other classes of real estate, with COVID-19, mandated shutdowns, and second-order drops in demand causing businesses to shutter. However, in China’s Hubei province, where the virus first emerged, nearly 90% of factories are in operation again. While industrial buildings must also implement social distancing among their employees, they are in some ways less vulnerable to COVID-19 than commercial or retail spaces, due to their lack of external foot traffic. The shortage of industrial space in Las Vegas prior to COVID-19 will keep lease rates and values pretty strong for the foreseeable future.
Yes, commercial properties are being seriously impacted by COVID-19, but the full effects have yet to play out. It remains to be seen how this pandemic will affect the value of existing properties and what long-term adaptations will be necessary. Investors looking for safer opportunities will want to look toward critical industries and facilities that will remain in operation regardless of mandated shutdowns. These include data, logistics, and medical centers, along with certain industrial properties, but opportunities aren’t limited exclusively to these sectors. An experienced real estate broker, like us at Graham Team Commercial Real Estate, can help you find and purchase the properties that are best suited to our portfolio during and after the current crisis.