US Office Tenants Are Paying Rent During Coronavirus Pandemic
admin / May 2020
Supply in the Works Is Smaller Than the Last Recession
The outlook for the U.S. office market has bright spots, rent payments and tight supply, despite the toll the coronavirus outbreak is taking on the economy. “Overall, office tenants appear to have been able to continue paying their rent during the COVID-19 pandemic”, says Michael Roessle, director of U.S. office analytics. “I haven’t heard of widespread missed payments among portfolios, though that may become a greater issue the longer this pandemic drags on,” Roessle said. The CEO of Starwood Capital Group mentioned the firm had received the April rent payment from 95% of the office tenants in its 75 million-square-foot portfolio, contrasting with about 20% of retail tenants.
Roessle’s forecast for construction identified several other positive factors for the office sector. While several cities across the country have banned construction, most areas consider that sector an essential service that can continue, he said.
“Clearly there will be some delivery delays based on those construction bans, availability of supplies and labor as well as a drop in demand,” Roessle said. “However, several developers with delivery dates 12 months or more out believe demand will resume by the time the buildings are ready for occupancy and are pressing forward.”
The supply of office properties now in the works is less than that prior to the Great Recession, which is also a silver lining for that part of the commercial real estate market, according to Roessle.
“Slower-growth Midwestern and East Coast markets have the least supply underway,” he said. “And that’s likely very fortunate as we head deeper into an economic downturn. This is true for the U.S. at a macro level as well, as the total square footage of construction starts was about 30% lower in 2019 than in 2006-2007 heading into the last recession.”
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