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As Arizona Begins To Re-Open, What Should We Expect From the Commercial Real Estate Industry?

The ongoing coronavirus pandemic has fundamentally changed the world as we know it. As countries around the planet began to shut down, states within the U.S.A.. followed suit. While each state followed its own set of guidelines, the country as a whole experienced a cumulative economic downturn. Now, months later, the state of Arizona is beginning to re-open as life returns to some semblance of normalcy. Unfortunately, life will be anything but normal for the commercial real estate market in the weeks, months, and potentially even years following COVID-19.

Understanding the Impact of COVID-19

While much has been made regarding the discussion of COVID-19s true impact on the country, it is hard to ignore the economic fallout that has taken hold in Arizona’s commercial real estate market. According to a vacancy report detailing post-COVID office vacancies, Arizona’s business sector is sporting Great Recession-levels of vacancy rates within traditional office buildings. A report compiled by the team at Costar projected that vacancy rates in commercial offices will remain between 11% and 15%. Seeing these numbers and understanding their impact are two different things. While only a sliver of the picture, this vacancy number gives us plenty to digest.

Let us briefly chart a few primary ways that the commercial real estate industry in Arizona will shift for the foreseeable future. As the state of Arizona continues to re-open, these expectations should be held for the commercial real estate industry:

  1. Space Requirement Changes – Living in a post-COVID world means acclimating to the new normal. Social distancing, sanitation, and large open spaces will dominate commercial property in the coming months and years. As OSHA and HR reps around the state adjust to these new regulations, expect businesses to need larger spaces for the same amount of work.
  2. Equalizing Rental Rates – As individuals struggle to make ends meet, there is an expectation that rental rates will reach an equalization factor. Landlords who are not beholden to debt or lenders that are offering amenable rates will do what is possible to keep their buildings fully staffed. As landlords compete to retain the best tenants, there is an expectation that flexibility in lending and renting can be met.
  3. Changing Operational Expectations – Industries that rely on call centers will also experience rather large changes in the way that they perform in the post-COVID world. Call centers will be expected to split shifts to reduce the footprint of their employees. Buildings will be reorganized and adjusted for CDC and OSHA regulations which could include the installation of filter systems, sneeze shields, and other sanitary safety measures.

While there is no telling exactly where Arizona will be on the other side of the COVID-19 re-opening, it does appear that the state is primed for a healthy launch. Arizona sports a warm and dry heat thanks to its geographical location. With plenty of room for potential land development and a healthy infrastructure for commercial construction, Arizona is in a primed position to succeed.

image of figurines of commercial real estate agents social distancing

Social Distancing Requirements Impacting Commercial Real Estate

When the first case of COVID-19 was diagnosed in the United States in January, it’s fair to say that the vast majority of people never thought it would lead to the nation being effectively shut down for the foreseeable future. Now over halfway through the year and restrictions still in place throughout most of the country, all kinds of businesses are being forced to adapt or go under. The commercial real estate industry is no exception, and it is important for all investors, property managers and building owners to know exactly what they’re dealing with.

It’s worth noting that, depending on the specific business operating out of a commercial space, there will be a variety of unique individual issues that need to be handled. In general, however, these are the social distancing requirements that need to be addressed in order for the space to be open and operational:

Ventilation is a Priority

All commercial spaces must have proper ventilation in order to help prevent Coronavirus spread. This means windows should be able to be opened, and ventilation systems may be in need of an upgrade. Many commercial spaces are also adding in fans and vents where none existed before.

Office Layouts Must Allow for Desk Spacing Requirements

Yes, a lot of offices are still sitting empty, with employees telecommuting from home as they wait out the pandemic. However, many others are going back to work in their office settings in order to increase productivity and communication. In order to do so, they generally must meet social distancing requirements by spacing desks out and seating employees so they face away from each other. Furthermore, cubicles are poised to make a comeback in lieu of the open offices that have become prevalent in recent years. Having divisions between work spaces is important in order to slow the spread of germs

On this note, many companies that are opening back up are even looking to relocate to larger spaces that allow for them to spread out. Conference rooms and walkways must also be expanded, allowing for coworkers to safely pass one another without coming into close personal contact.

Store Space Needs Are Changing

Most retail businesses now must operate at limited capacity and/or provide clear directional walkways for customers. Rather than sacrifice inventory and displays, a lot of retailers are therefore looking to expand their spaces when their leases are up.

On the flip side, other retailers that have been heavily hit by the pandemic are looking to downsize. They are looking for spaces where they can still effectively run their businesses with social distancing requirements in places, but within a smaller setup.

Cleanliness is a Must

All commercial spaces need to be cleaned more frequently now, meaning there must be easy access to cleaning supplies. Sinks are considered a plus, as are bathrooms that can be both easily cleaned and give customers and tenants more space.

Automated Features are a Welcome Bonus

Before 2020, the world was already making a gradual shift toward automation. From lighting to doors opening to even elevators knowing when to stop by themselves, automation has made great strides. Now with the ongoing pandemic, the fewer buttons and surfaces that need to be touched, the better. Automation helps promote as little personal contact and germ-sharing as possible, so it is likely that commercial properties with automated features will become even hotter commodities in the near future.