The Growing Effects of COVID-19 on Commercial Real Estate Investments in Arizona
Business Attorneys Explain How The Commercial Real Estate Market Has Been Affected by COVID-19
The coronavirus pandemic has negatively impacted the economy across the country. All markets have been impacted, though some more so than others. Job losses, business closures, and insecurity about the economy have all contributed to the downturn.
The commercial real estate market has historically faced economic downturns later than other industries – as much as six months in most cases. However, because of the businesses occupying that commercial real estate have been closed, the industry has taken a hit much faster in the pandemic. But the industry was in a good place when the pandemic began, so there may be hope for it to recover more quickly once the economy begins to turn.
If you own commercial real estate, you should talk to an Arizona business lawyer about your options for minimizing your losses – or even for selling the property. In the meantime, here’s a closer look at how different areas of the commercial real estate market have been affected:
Real Estate Investment Trusts
The impact on real estate investment trusts (REITs) has largely been dependent upon the impact of tenant businesses. Where the impact on tenants has been the worst – such as for food or personal service establishments – the impact on the REITs has been the most pronounced.
According to the data center, in the month immediately following the outbreak, the overall REIT index was up 34 percent over the previous year, while the retail index was down 48 percent and the hotel index was down 53 percent. Property tours and transactions have both decreased.
Developers and Homebuilders
There has been a slowdown in new construction. In the first months of the pandemic, a survey of contractors found that more than half of U.S. construction firms had stopped or suspended projects. About two-thirds were delayed because of materials shortages or a lack of personal protective equipment.
New home sales are expected to continue declining. The Fannie Mae Home Purchase Sentiment Index dropped nearly 12 percent in March, reaching its lowest level since December 2016.
Private Equity Real Estate
One bright spot in the sector has been private equity real estate. So far, there has been no decline in the sector. That can largely be attributed to their non-public nature. Investors have largely focused inward to help manage risk, and that has continued to be a benefit for private equity real estate.
Proptechs, or property technology, has faced a similar fate to some other commercial real estate investments – their impact depends upon their market. For example, proptechs related to coworking or co-living spaces or to holiday rentals have taken a hit. However, proptechs that are related to property and building management have been performing much better. These have proven to be useful tools for managing properties and interacting with tenants when social distancing has become a necessity. We’re likely to see similar trends as the pandemic continues throughout 2021.
Commercial real estate has been negatively impacted by the pandemic, as have many other types of businesses and investments. It is important for investors to continue to watch the market closely and to make changes based on short-term and long-term goals. While we can’t predict what will happen, we can look at the data and make educated choices based on trends. Work with a business attorney in Gilbert to handle any sales or acquisitions, or to draw up any other partnership contracts or agreements to ensure that your rights are protected and your liability is minimized.
The business attorneys at Denton Peterson Dunn are ready to help you manage your portfolio of commercial real estate investments. Our business law team can draw up tenant agreements, leases, sales contracts, and more. We can help you analyze and minimize your liability by putting the right measures in place, such as certain contracts or insurance policies. We can also represent you in partner disputes, large sales, and more. We have offices in Phoenix, Scottsdale, and Mesa, and we serve all types of business clients. We are a top-rated business and corporate law office, and our experienced business attorneys are committed to protecting our clients’ interests. Call Denton Peterson Dunn today to schedule a consultation with a business lawyer to discuss your concerns.