Commercial Property Renters Struggle To Reshape Their Business Models
As the country continues to navigate through the pandemic, struggling commercial property renters are having to reshape their business models to move outside of their traditional brick-and-mortar spaces. Many of the creative solutions that arose from the pandemic will have lasting effects on how the industry does business. And now, with SBA loans running out and the businesses that received them reluctant to spend those loans on rent, commercial renters, landlords, and the industry at large are taking a hit.
In the case of commercial properties, landlords are being forced to reevaluate rent expectations. Most businesses are reliant on revenue as the main contributor to their rental payment, so without regular business and additional government funding there is not a viable long-term solution. An estimated 75% of commercial property renters have been able to complete payments compared with 95% of residential renters.
Brick-and-mortar businesses unable to transition their business to online or drive-thru, pickup, or delivery are more likely to go out of business. Without stronger legislation in favor of aiding these struggling businesses, adapting to alternative models is the only way to remain afloat.
Many landlords and property managers also have adjusted to become proactive and communicate more openly with their tenants, documenting who has been affected by the pandemic and assisting them as best they can, including pointing them in the direction of any additional aid they could potentially qualify for.
Tenants who previously proved to be timely and responsible are being trusted as such, and payment plans have become a temporary solution. For many property managers, the mindset is that a good tenant pre-Covid will be a good tenant post-Covid. Additionally, many independent landlords are seeking advice from property management companies and ultimately making the decision to hand the reins over to them. For our company, the number of properties managed has increased in some areas over the past 6 months.
With the additional unemployment benefits from the CARES Act having expired at the end of July, the rental market is anticipating that the lower-than-expected reduction rate in rent collection may change. Unless an additional stimulus package is released or additional unemployment benefits are awarded to renters, it’s likely landlords will see an increase in the number of tenants unable to pay their rent on time, if at all.
As we discovered at the beginning of the pandemic, the future of real estate and property management is uncertain and will likely be tied to Covid-19 case projections and breakouts. As it stands, 30% of the commercial market is out of business and unemployment is stagnant. And without more significant intervention and government assistance to banks and renters, it is difficult to say how long a residential recession will be postponed.
It’s hard to know what a full recovery will look like, but as the industry makes adjustments it is clear that we cannot expect a complete return to “normal” any time soon, if at all. For now, property management companies are following changing consumer behaviors and surviving within business strategies that have been implemented to set them up for success as things continue to move forward.
Randall Henderson is Vice President of Commercial and Residential for Property Management Inc., based in Lehi, Utah. Founded in 2008, PMI provides expert property management services and solutions across four pillars: residential, commercial, association, and vacation rental management. Call 801-477-8556 to learn more.
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