How are pandemic disruptions impacting CRE trends and your long-term planning? See what KBRA found

by Brianna Crandall — October 2, 2020 — Kroll Bond Rating Agency (KBRA), a full-service credit rating agency for Europe and North America, recently released a report that discusses how many of the secular trends that were shaping the future of commercial real estate (CRE) over the past several years were accelerating prior to the COVID-19 pandemic.

In many instances, these trends have been upended in the wake of the pandemic shutdowns and adjustments needed to reopen workplaces. Changes in property use have occurred overnight, some of which will permanently alter the CRE landscape, predicts KBRA.

In the report, KBRA highlights what it believes will be some of the CRE secular implications for the major property types. Some of the covered topics include:

  • Office: Employee square footage (affected by social distancing and remote work), telecommuting, a shift to the suburbs for space and health, “third-office” concept, coworking, functional obsolescence, higher operating costs, smart buildings
  • Retail: Online sales, store closures and alternate strategies, category A malls not immune, experiential tenants, off-price retail, pop-up drive-ins
  • Warehouse: E-commerce accelerated, just-in-case demand, physical space needs, supply chain disruptions
  • Multifamily: Virtual showings, changing situations, apartment size/location, senior/student housing, co-living, amenities
  • Hotel: Business trips/conferencing, leisure travel, supply reductions, rising operational costs, health/safety, Airbnb

In regards to office buildings in particular, many offices remain shut down or only partially occupied, and social distancing protocols along with remote working have changed space layouts and requirements. Building operating costs are likely to increase due to greater attention to cleaning, space reconfigurations, and retrofits to improve indoor air quality (IAQ) and to add touchless features. Interest in smart building technologies such as building access control; heating, ventilation and air-conditioning (HVAC) system monitoring; and density tracking may accelerate.

The report (at the end) provides links to these previous Secular Trends Reports from KBRA:

  • E-Commerce and Marijuana Light Up Warehouse Space
  • Online Retailers Check Out Neighborhood Shopping Centers
  • Hotels Are Not Taking Airbnb Lying Down
  • Generational Gap Does Not Divide Living Preferences
  • The “My” To “Our” Office Space Transformation

The report also links to these Related Publications:

  • CMBS Trend Watch: July 2020
  • CMBS Loan Performance Trends: July Update

The Coronavirus (COVID-19): CRE Secular Trends Upended by Pandemic Disruption report is available for free download from the KBRA upon registration.