The current COVID-19 crisis is the most severe that the real estate industry has ever faced. For an industry that has been around for centuries and has suffered many major swings, that is saying a lot. But this time is different, as we contemplate wholesale secular changes in behaviours and technology, and the impact of economic disruption. Many things will change, including the fundamental need for a traditionally reticent industry to communicate.
In recent weeks, as numerous commercial tenants failed to pay their April rent, media was abuzz with speculation that commercial landlords would be evicting tenants and tragic stories of independent businesses, from barbershops to bakeries, whose livelihoods were on the line. While it may not have made any logical sense for commercial landlords to hand out eviction notices, there was a clear expectation that landlords would not necessarily “do the right thing.”
At the same time, the federal government has announced the Canadian Emergency Commercial Rent Assistance Initiative (CECRAI), which will assist small businesses to cover their rent for April, May and June. The CECRAI provides critical relief to both small businesses, who are the foundation of our economy, and landlords, many of whom are small scale and cannot cover their mortgage payments without rental income.
For the commercial real estate sector, the next challenge will be adapting to the post-pandemic changes that result from society being locked up for several months. For example, will working from home become the norm, and as a result, businesses will radically reduce their office footprint? How will embedded social distancing impact customers at restaurants and entertainment venues? Will more extensive e-commerce usage further erode brick and mortar retail? Addressing these challenges will require imagination, strategic thinking and strong communications to a variety of stakeholders, from tenants to government, as well as employees, media and the market.
The industry has adapted before. Witness the creative response by many landlords to the significant vacancies that resulted from the departures of Target and Sears stores. Cavernous spaces have been successfully converted into multiple store centres, but also into office space and even a college campus. In the office sector, many landlords have successfully adapted to the demand for open office space and office “hotelling.”
In short, generating value in real estate will no longer simply be about “location, location, location” when just about everyone has embraced the cloud. Radical repurposing of properties may be required to meet the needs of tenants and customers whose lives were disrupted and will look at their everyday activities in a much different way—from parking requirements to more flexible approaches to leasing terms.
Empathy will also become a core component of how business is conducted, along with an even greater consideration around government involvement. Stakeholders are expecting a broader response from corporations that reflects a social awareness, and solely discussing financial performance will no longer be sufficient. Now more than ever, communications that engage, explain and empathize will be essential.