The COVID-19 pandemic resulted in general problems for the economy, but it was especially difficult for commercial real estate. Transactions declined heavily, and office vacancy rates shot up because most businesses had to work from home.

With the total sq ft dropping by more than 20 million, a shake-up in the commercial real estate industry was inevitable. This blog will explore the changes that happened when the pandemic started, what is happening to office vacancy rates, and what conclusions we can draw about the future.

What is Happening?

As mentioned above, the commercial real estate industry suffered extensively at the beginning of the pandemic due to social distancing mandates. Interestingly, the market has shown some unique movements since then.

Rising and Falling Values

While some commercial real estate properties like office buildings, malls, etc., suffered, warehouses flourished, especially due to the increased reliance on e-commerce. Curiously, the reliance on e-commerce has not diminished by much, even though the pandemic has mostly calmed down.

Office Vacancy Rate Movements

Another interesting development has been the fluctuating office vacancy rates. The rates increased from 9% in the fourth quarter of 2019 to 13% in the first quarter of 2020. They continued increasing steadily over the next few quarters, reaching 17.2% by the second quarter of 2021.

However, by the end of the third quarter of 2021, they have suddenly dropped to 12.4%, and there is increasing speculation that they will decline by another 0.2%. Industrial and retail vacancy rates are also expected to decline by 0.6% each.

Reasons for the Recent Fluctuations

There are a few reasons why office vacancy rates have started dropping, the most likely of which are mentioned below.

1. Return to Offices

With vaccinations increasing and COVID-19 cases declining, most businesses are returning to the traditional office work norm. Therefore, the offices that people let go of because paying rent cost seemed unreasonable when nearly no one visited the office.

With businesses returning to offices, the social distancing rate increase is returning to normal.

2. Lower Rent Costs

Another key reason for the sudden drop in office vacancy rate is the lower rent cost. The sudden fall in demand for office spaces created surplus supplies, pushing down the rent cost. As the country has started mobilizing again, many organizations have taken the opportunity to form rent agreements at these lower cots before they increase again.

The sudden demand is slowly increasing the rent cost but has pushed the office vacancy rate easily down.

The Way Forward

Knowing that are still chances of a vacancy rate lowering, the best option would be to invest in or buy a modern and technologically savvy office property or few. The rent prices will go back up again, so now is the right time to make your investments.

Final Thoughts

In a nutshell, while commercial real estate suffered during the pandemic, it is slowly recovering, and investing in it while the situation is favorable is the best option. It will be interesting to observe how quick investments can change a person’s lifestyle.

If you want to hire a real estate broker for consultation, please get in touch with the CHRE team of experts. We look forward to your queries and will respond to them as soon as possible.