Please ensure Javascript is enabled for purposes of website accessibility

Tag: commercial real estate

How to Reduce Real Estate Investment Risks: 12 Expert Tips

Risk is part of any investment. Nowhere is that more apparent than in real estate. When you purchase a property, there’s no guarantee you’ll see a profit. Renters may stop paying rent, the economy might suddenly crash or the real estate market may shift. Here are 12 tips to reduce real estate investment risks.

READ: 4 Biggest Risks of Real Estate Investing in 2023 and How to Minimize Them

1. Diversify your portfolio

The golden rule of real estate investing is to diversify your portfolio. This means purchasing different types of properties so you won’t suffer too much financially if one investment collapses. 

For example, central retail locations, such as malls, have suffered a severe downturn as commerce moves online. Real estate investors who own other types of real estate, such as rehabbed houses or vacation rentals, will likely see better returns than those whose portfolios are stacked with brick-and-mortar shops.

2. Expand to other locations

Diversifying your portfolio is about more than just what you buy. It’s also about where you buy. This means owning property in urban, suburban, and rural areas and expanding property ownership to other states. Consider working with long-term tenants who are looking to move to another location. It’s a win-win if a landlord and a tenant can find a great new location together.

READ: Identifying Emerging Real Estate Markets: Key Indicators for Lucrative Investments

3. Monitor industry trends

Paying attention to industry trends can help you make better choices regarding new investments. Heed important industry data, such as:

  • Where people are moving and where they are leaving
  • Micro-markets, such as areas close to schools, transportation, amenities, and greenspaces
  • Cultural trends

Trends can be tracked through investing apps or by subscribing to major industry publications.

4. Make sure you’re insured

You’ll need comprehensive insurance for any properties you own. This is an industry standard and protects against vandalism, fire and other natural disasters.

If you are concerned about tenants defaulting or not paying rent, rent guarantee insurance is also an option.

5. Take care of your investment

It can be tempting to neglect maintenance and upkeep when money is tight, but resist this urge. Not only does proper care and maintenance protect the value of your property, but it also makes it more attractive to prospective tenants. Additionally, regular maintenance means you’ll catch small problems before they become big ones.

6. Rent carefully

Background checks that screen for criminal history and financial problems are important. These help you find the most reliable tenants for your property.

READ: Tenant Scams — How Landlords Can Spot and Avoid Them

7. Manage costs

Hidden costs can potentially increase real estate investment risks. On top of your mortgage payment, you should also expect to pay real estate agent commission, closing costs, taxes, insurance and maintenance expenses. 

If money is tight and the economy is uncertain, keeping track of every penny is important. Check regular bills — such as insurance, utilities and taxes — to ensure rates are competitive and you get whatever discounts you qualify for.

8. Find unique opportunities

Experienced and novice investors alike tend to stick with what they know: commercial, residential, medical and retail spaces. But they should also consider unique real estate investments, such as parking spaces and garages. Consider the number of times you’ve driven around a building looking for a parking spot, and you’ll immediately understand the value of these unusual investments.

READ: The Ultimate Guide to Commercial Real Estate Investing for Business Owners

9. Maintain a financial cushion

No matter how carefully you plan, predicting every twist and turn you might experience is impossible. For this reason, it’s important to maintain a financial cushion that you can spend in emergencies, which may include: 

  • Unexpected vacancies
  • Market downturns that lower demand
  • Unforeseen repairs

Every situation is unique, and there’s no specific rule dictating how much of a financial buffer you’ll need. Some investors might be comfortable with a few thousand dollars in the bank. Others advise against keeping too much cash on hand and recommend reinvesting every penny into a new property instead. If you’d feel more comfortable with an emergency stash, set up a high-interest savings account so your money is making money while it’s in reserve.

10. Follow the rules

Nothing torpedoes your profits faster than fines and legal fees accrued when you don’t follow the rules. Before purchasing or selling a property, make sure you have legal counsel specializing in real estate to review all contracts. You’ll also need to ensure the zoning is correct for your intended purposes. Changes in zoning can be time consuming and expensive if modifications are needed.

11. Make sure your timeline matches your goals

Some real estate investment risks are a long game. Do you have time for that, or are you interested in more immediate results? Few investments will be profitable overnight, but some will be more productive sooner. Commercial real estate has had historically high returns, while residential properties have had lower returns. However, a well-placed rental can produce consistent income. The property that’s right for you will depend upon your objectives.

12. Assemble a solid team

Teamwork makes the dream work. From your real estate agent to your property manager, assemble a solid team committed to you and your portfolio. Your team can help protect your investments, even in a challenging market.

 

Screen Shot 2021 12 28 At 113128 AmLuke Babich is the Co-Founder of Clever Real Estate, a real estate education platform committed to helping home buyers, sellers and investors make smarter financial decisions. Luke is a licensed real estate agent in the State of Missouri and his research and insights have been featured on BiggerPockets, Inman, the LA Times and more.

Unlocking Buying Potential: The Ultimate Guide to Commercial Real Estate Investing for Business Owners

Are you a business owner looking to invest in commercial real estate? If the answer is yes, then you’ve come to the right place. Commercial real estate can be a great investment opportunity for business owners, but it comes with unique challenges and considerations. That’s why we’ve created the ultimate guide to commercial real estate investing for business owners. In this guide, we’ll cover everything you need to know to get started with commercial real estate investing, including the benefits of investing in commercial real estate, the types of commercial real estate properties and the steps involved in the investing process.

READ: The Pros and Cons of Investing in Real Estate During a Recession

Benefits of investing in commercial real estate

There are several benefits to investing in commercial real estate as a business owner. Firstly, it can provide a steady source of rental income, which can help to offset any costs associated with your business operations. Secondly, commercial properties can appreciate in value over time, providing you with a valuable asset that can be sold for a profit in the future. Commercial real estate can also provide tax benefits, such as depreciation deductions, which can help reduce your tax liability.

Types of commercial real estate properties

Commercial real estate encompasses a wide range of property types, including retail, office, industrial and multi-family properties. Each property type has its own unique advantages and considerations. For example, retail spaces are typically located in high-traffic areas and can generate significant rental income, but they can also require more maintenance and repairs than other property types. On the other hand, multi-family properties can provide a stable source of rental income, but they may be subject to higher vacancy rates and turnover.

The investing process

The investing process for commercial real estate is different from that of residential real estate and requires different skills and knowledge. Some of the steps involved in the investing process include finding the right property, conducting due diligence, securing financing and negotiating the terms of the deal. It’s important to work with a team of professionals, including a real estate broker, attorney and accountant, who can help guide you through the process and ensure that you are making informed decisions.

READ: LLCs and Real Estate Investing: Pros and Cons You Should Know in 2023

Managing your investment

Once you’ve invested in a commercial property, it’s important to manage it effectively in order to maximize your returns. This may involve hiring a property manager to handle day-to-day operations, such as tenant communications and maintenance requests. It’s also important to stay up-to-date on market trends and conditions in order to make informed decisions about when to buy, sell, or make improvements to your property.

Investing in commercial real estate can be a great way for business owners to diversify their portfolios and generate passive income. However, it’s important to approach the investment process with a thorough understanding of the risks and rewards involved. By following the steps outlined in this guide and working with a team of professionals, you can make informed decisions about your commercial real estate investments and maximize your returns over time. Good luck!

 

Brooke Chaplan headshot.Brooke Chaplan is a freelance writer and blogger. She lives and works out of her home in Los Lunas, New Mexico. She loves the outdoors and spends most of her time hiking, biking, and gardening. For more information contact Brooke via Twitter @BrookeChaplan.

Creating a Successful Real Estate Portfolio

Real estate continues to be among the most valuable investment opportunities. There are various ways to gain returns from a solid portfolio. Yet, knowing how to build a strong property collection is not always a simple matter.

If you’re a real estate agent, clients will come to you for your expertise. This isn’t just limited to selling them a new family home or selling a commercial property to a small business. Agent or property owners alike, there may also be investors who want to collaborate with you in establishing a good selection of properties. Knowing how to create a successful real estate portfolio can see you build mutually beneficial, long-term relationships with investors. Not to mention that your knowledge here can help you target more valuable and relevant property prospects for your company.

Let’s look a little closer at what it takes to create a successful real estate portfolio. 

Clarify the Priorities

What makes a successful real estate portfolio is very much dependent on the investor’s goals. These will influence the approach you take to selecting properties. As such, when acting as an agent for these clients or building your own portfolio, you must clarify the priorities.

These could include:

  • Predictable Income. Some real estate investors will be interested in creating a relatively predictable income from their assets. As such, you are more likely to be focused on generating a solid rental property portfolio. Depending on the budgets involved, commercial real estate can be the most solid target. Still, residential rentals in neighborhoods peppered throughout Denver, Fort Collins, or Colorado Springs, for example, are favored by professionals and families and could also make for a reliable portfolio.
  • Market Relevance. If your investors are looking to see quick sales returns on their portfolio, one of their priorities is likely to be market relevance. This doesn’t just mean focusing on a range of properties that are trending with buyers now. Rather, it’s also about being able to track the markets and forecast what neighborhoods and properties will be in demand in the near future. This could include sustainable houses to sell to increasingly environmentally conscious buyers. It may be creating a portfolio within properties outside cities to account for the rising popularity of remote work.

The market dictates what types of properties are being sought, the most active consumer demographics, and popular locations, among other aspects. Levels of supply and demand can also determine the validity of an investment.

Perform Thorough Research

A relevant and profitable folder of properties can’t arise from a cursory look at how local listings appear to match with investors’ priorities. In other words, identifying prospects that result in good returns must be based on thorough research.

Some areas of focus can include:

  • Market Analysis. It’s almost impossible to identify potential areas for good investment returns without market knowledge. The market dictates what types of properties are being sought, the most active consumer demographics, and popular locations, among other aspects. Levels of supply and demand can also determine the validity of an investment. At the moment the poor supply of homes has caused prices to skyrocket, shooting the typical value of a Colorado home, as of 2022, at $545,794. Part of your role as an investor or real estate agent is to actively follow and analyze these changes to establish where profit could be made.
  • Property Inspections. The most important aspects of a property can’t be determined by a simple review of its location and measurements. While a building may look good on the surface, there can be underlying issues that make it unsuitable for investment. The presence of “sick building syndrome” caused by unseen contaminants could affect the health of occupants or tenants over time. This applies as much to commercial properties as residential. Such issues can mean an investor either fails to retain tenants or has to make costly changes. Performing full property inspections can give you the knowledge to advise investors accordingly and avoid such problems.
  • Community Development. Location is a vital consideration for any real estate portfolio. However, it’s important not to dismiss areas because they’re deemed as low value. There may be plans in place to create positive development in the area. This could be through improved infrastructure, enhanced safety protocols, or new amenities. For example, some local communities have pushed to create places where artists can flourish in places like Loveland in northern Colorado. Do your research about what changes are likely to occur in the near future. This allows you to identify properties that may be low cost now but see significant returns in the near future.

It’s still a great time to buy in the Colorado home real estate market. Even if that were to change tomorrow and a certain sector of the market were to see drastic economic failure, investors are protected via a diverse portfolio. 

Be Mindful of Risks

Any investment is loaded with potential hazards. Being a successful investor is about understanding the risks and managing them accordingly. There are various factors that can determine your, or your client’s, ability to withstand aspects such as market volatility and economic uncertainty. However, there are some steps you can take to help create a more robust and protected real estate portfolio.

These include:

  • Diverse Range. Having a diverse range of properties in a portfolio is important. This method helps investors weather market trends and changes more effectively. The diversity of properties in the portfolio can include various geographical locations, commercial and residential properties, and even rental and sale assets — from Airbnb’s in Aspen to college rentals in Greeley — it’s still a great time to buy in the Colorado home real estate market. Even if that were to change tomorrow and a certain sector of the market were to see drastic economic failure, investors are protected via a diverse portfolio.
  • Professional Guidance. Working with experts is important when creating any solid portfolio. You are a key source of knowledge for your clients. However, it’s also important to build strong relationships with a range of other experts to mitigate risks. This should include reliable assessors to review and inspect properties prior to sale. For rentals, skilled property managers should be in place to screen for reliable tenants. They should also perform regular landlord inspections that ensure the continued good condition of the property.

A strong real estate portfolio can be a great investment for your real estate clients or your business. Building this involves gaining clarity on the investment priorities so you can select appropriate properties. It’s also vital to perform thorough research on the markets, properties, and community alike. Being mindful of risks throughout the process helps you to protect your assets.

There are never any guarantees in investment, but a portfolio based on informed choices can produce positive returns.

 

Noah RueNoah Rue is a journalist and content writer, fascinated with the intersection between global health, personal wellness, and modern technology. When he isn’t searching out his next great writing opportunity, Noah likes to shut off his devices and head to the mountains to disconnect.

How to Best Screen Commercial Tenants

Office buildings are currently in a state of transition. With the ever-evolving pandemic restrictions, many organizations are contemplating who gets to come back to the office and who stays home. Truth be told, most employees going through this transition now will likely find themselves somewhere between being in the office full-time and being at home full-time. Ultimately, this results in an increase in vacancy rates.

As such, landlords and their agents will develop creative ideas for keeping the extra space occupied and rent money rolling in. While creativity will lead to more potential occupants, landlords still need to be selective with their potential tenants.

Incompatible or Prohibited Uses

Property ownership comes with many responsibilities. The landlord as owner of property is ultimately liable for the condition that the tenant leaves a property, including covering damages or repairs and the future marketability of the property. If a tenant is particularly damaging, and it conflicts with applicable zoning and covenants, or exclusive uses or becomes a nuisance, the costs for a landlord can add up quickly.

In addition, local laws might restrict the types of businesses allowed or condition specific uses in certain areas. Certain uses might be prohibited altogether — for instance, a kennel, bar, gas station, or marijuana shop. Sometimes local zoning might permit the use, unless the use is prohibited by private covenants imposed on the property.

Upsetting Existing Tenants

Tenant turnover can be exhausting. There are many benefits to keeping a reliable client for as long as possible, if they abide by their lease and pay rent on time. Good landlords attempt to attract tenants that complement the existing or desired tenant mix. Those that end up renting to less than ideal clients risk upsetting the current tenants and being portrayed as unfair or unattractive. Be selective with potential candidates to ensure that existing tenants remain satisfied, and that landlord does not inadvertently breach an agreement with other occupants sharing the property.

Financially Questionable Occupants Lead to Financial Burdens

Unfortunately, some prospective tenants are not going to succeed. If a prospective occupant is unable to demonstrate financial ability, then the landlord should not rent the space to them. While there is a contractually obligated to pay rent even if the business fails, the landlord may soon be facing the headache of replacing another tenant, paying a commission, expending funds for tenant improvements, and legal proceedings to recover possession.

Of course, landlords hate empty space, but there is always the risk of making a bad situation worse. Landlords often consent to the assignment or subletting to maintain a steady stream of rent payments. An occupant who cannot make those payments does nothing to better the landlord’s position. A financially strapped business is more likely to:

  • Cease making payments
  • Fail to maintain the premises
  • Fail to properly insure the premises, placing greater liability on the landlord

The Additional Administrative Costs

Landlords or property managers must keep track of the obligations imposed on the parties under their lease. An inability of the landlord to control the transfer prevents from landlord from ensuring that:

  • They are collecting rent from the proper party
  • The proper party is insured
  • The proper party is given notices as required under the lease and by law

Often, the landlord will pay someone to keep track of this information. Without landlord review on the front end of the transfer, the landlord must constantly have someone investigating properties to confirm that their records are accurate.

Generally Making a Bad Situation Worse

Renting property comes with inherent risks. Landlords are always searching for ways to minimize these risks. Extra caution is imperative when screening potential occupants. Lease agreements should require landlord approval. If landlord approval is delegated to a tenant, then think about conditioning such consent on factors such as the financial strength of the tenant, compliance with laws, providing landlord prior notice, and whether the transferring tenant is released from liability.

 

Robert FischerRobert Fischer is an attorney at the Fischer Law Office. With two decades of experience, Fischer is one of Colorado’s leading commercial real estate attorneys. He provides a full range of transactional legal services for professionals looking to buy, sell or lease commercial real estate.

What’s the future of commercial real estate?

In light of the coronavirus, investing in commercial real estate right now can feel risky.

Last March when the pandemic first struck, nearly 90% of businesses worldwide closed their doors and encouraged employees to work remotely. Although the initial phase of this shift was a shock to the senses, people eventually became used to working from home; now, according to a recent report by Clever Real Estate, 63% of employees say they prefer to work from home rather than in the office.

That same report revealed that 53% of larger organizations plan on scaling down their office sizes after the pandemic and that the shift to a virtual work environment could have long-term effects on the commercial real estate industry.

These larger trends are reflected in the Denver metro area as well. At the end of last year, office vacancy rates were at their highest levels since 2011, according to CBRE research, and employers with office space in Denver let go of 8,400 more jobs through November as compared to the same period in 2019.

Moreover, a McKinsey Global Survey of executives conducted last year revealed that 62% of respondents believe the changes brought about by the pandemic (such as increased remote work and customer preferences for digital products and services) will stick around after the recovery.

Is Commercial Real Estate Dead?

Taking all of these factors as a whole, it seems the commercial real estate sector has permanently changed. With increased remote work and PPE measures being installed, co-working spaces will likely be on the rise, but offices will certainly not be as large or prominent as they once were.

This does not mean, however, that the commercial real estate market is dying. Rather, the needs of consumers have just shifted, and opportunities have opened elsewhere, such as multifamily housing and industrial real estate.

In the wake of the pandemic, Denver has become one of the most popular cities for people relocating. This increase in new residents has spurred demand for housing, and sales of multi-family homes have continued to outpace previous years. According to research by the Denver Metro Association of Realtors, there were 22.6% fewer condos and townhomes on the market in 2020 than in 2019, but average sales price had increased by 7.7% due to increasing demand. Inventory is incredibly low right now, and the need for more multifamily options is undeniable.

The industrial market also saw a dramatic increase in activity last year. While there was an initial lull in activity in the early part of 2020, by the end of the year, more than 3.4 million square feet of warehouse, manufacturing and other industrial space was acquired by new tenants, a near 15% year-over-year increase from 2019. Additionally, there is currently another 8.2 million square feet of industrial space now under construction.

Who are these industrial tenants? Well, in addition to Amazon, these companies include Wayfair, Lowe’s, Costco, and other big box brands that offer virtual delivery and ordering services.

Commercial Real Estate Is Here to Stay—But the Pandemic Has Permanently Changed It

If you do decide to invest in commercial real estate, then you should definitely hire an attorney, as these transactions are quite complicated. An attorney will make sure you meet all your legal requirements and also carry added weight during negotiations. Using a local realtor can also help your investment journey by finding a property that suits your goals and keeps your best interests in mind. Note that you can negotiate commission rates with your agent.

If physical property is too big of a commitment but you still want to dip your toes in the commercial market, then consider investing in REITs, which are viewed as a traditionally safe investment even during volatile times. REITs tend to offer high dividends, which can then be reinvested in order to compound the wealth generated.

Although consumer preferences may have changed, the need for commercial real estate still remains. Just be smart about where you invest your dollars, and do your research before making any big commitments.

How to protect your commercial real estate during mandatory shut downs

As COVID-19 continues to spread, so does its impact on the commercial real estate industry. Managing property is no easy feat even during ordinary times, and it’s even more difficult during a global pandemic.

Commercial real estate owners are responsible for an endless task list–from making sure people are following social distancing guidelines to abiding by laws and regulations imposed by state or federal authorities.

In truth, these laws exist to protect people, but they are also draining cash from the economy at incredible rates. As such, commercial property owners must continue keeping a close eye on their properties from both economic and safety-oriented perspectives.

To get off to a good start, here are four ways you can protect your property during a mandatory shut down:

1. Hire a Property Manager

Make sure your property manager is thoroughly examining the exterior of the buildings as he or she visits the premises. Check the roof, doors, and exterior walls to ensure there is no damage or vandalism. In addition, property managers would not only monitor the premises – they would also perform regular upkeep and maintenance of the property.

Even if your offices, stores, or warehouses are vacant, a property manager can keep a close eye on them. But regardless of whether it’s a property manager or someone else, have someone keep an eye on your property every day. A property manager could help you hire a security company to protect your property 24-7. Although this would be a cost, it would guarantee the safety of your investments. They can also ensure that no one is trespassing or taking up residence there without permission.

2. Check Up on Your Systems

The last thing you need to deal with is a system failure in a vacant building. HVAC system malfunctions and water leaks that you didn’t know about can end up costing you thousands of dollars in repairs. Make sure your major systems stay healthy with regular checkups.

When you close your commercial space in response to social distancing orders or similar mandates, you often can’t just lock-it-and-leave-it. Your HVAC system, which filters and circulates air, is one of your building’s most important tools. By itself, running your HVAC system is not enough to protect your tenants or employees from COVID-19. However, when used along with other best practices recommended by the Centers for Disease Control and Prevention, operating the HVAC system can be part of a plan to protect yourself and those around you.

If you have an HVAC system, there are things you can do to help keep your property safe during a shutdown. The first is to run the system fan for longer times, or continuously, as HVAC systems filter the air only when the fan is running. Many systems can be set to run the fan even when no heating or cooling is taking place.

It is important for your property manager to continue checking that the filter is correctly in place so the mechanism functions properly. You may even consider upgrading the filter to a higher efficiency filter or the highest-rated filter that your system can accommodate. Whatever you choose, it is most important that the system is running efficiently and correctly.

3. Work With Your Tenants

Landlords and tenants should be making every effort to work together constructively now more than ever. Both parties are facing potential financial challenges, and the fundamental end goals are the same: to make sure the tenant is safe and comfortable and the landlord receives rent and any other payments as due. Landlords should maintain dialogue with tenants in order to maintain relationships but must exercise caution in responding to tenant requests for accommodations. Maintaining consistency here is key.

In the state of Colorado, Governor Polis issued a moratorium limiting evictions during the COVID-19 crisis and adopted guidelines based on CDC recommendations. The expiration date for the longer notice periods and eviction restrictions is unknown at this time. To further complicate matters, the Supreme Court of Colorado Court has delegated authority to interpret executive orders to individual judicial district courts in those cases that are deemed nonessential matters, which include evictions.

In addition, it is important to continue making necessary repairs when it comes to your properties. It is important to communicate with your tenant when and how repairs will be completed to abide by social distancing guidelines. If you have to visit the property, you should attempt to keep at least six feet away from your tenants at all times and wear protective clothing such as gloves and masks. Talk to your tenants beforehand to establish if anyone has been in contact with someone with coronavirus or if anyone is self-isolating. The safety of all involved is very important. It may be best to have your tenant get tested before you attempt to make repairs in this case, or you can safely provide the necessary tools and instructions to your tenant if it is a repair they can complete themselves.

4. Review Your Leases

Having a licensed commercial real estate attorney review your leases can mitigate any risk of loss due to the pandemic. Have an attorney review your commercial real estate policies for any notification requirements to ensure that you can stay on-track with requirements. Also have your lawyer look over your commercial insurance policies to get an idea of what losses may be covered.

For example, you should know whether your commercial lease addresses force majeure. This concept arises when unforeseeable circumstances prevent someone from fulfilling a contract. These clauses may apply to forced closure due to governmental requirements beyond the control of the landlord. Landlords should be careful to comply with, and consult an attorney on, the notice and other procedural steps that may be required under the applicable lease in the event of

this kind of occurrence. Again, in Colorado, these situations are to differ by judicial district court due to the ongoing pandemic.

While it is not an exhaustive list, this is an excellent guide to begin protecting your property during COVID-19 and beyond. For more information, reach out to a licensed attorney who specializes in commercial real estate issues.

Robert Fischer Robert Fischer is an attorney at the Fischer Law Office. With two decades of experience, Fischer is one of Colorado’s leading commercial real estate attorneys. He provides a full range of transactional legal services for professionals looking to buy, sell or lease commercial real estate. 

How COVID-19 is transforming Colorado commercial spaces

COVID-19 has not only impacted how we live our lives, but it has also drastically changed the way our businesses operate.

Many companies have risen to the occasion, taking immediate action to safeguard employees and adapting to new ways of operating. Across industries, leaders use the lessons from this large-scale work-from-home experiment to reimagine how work is done—and what role offices should play—in creative and bold ways.

While many industries have been able to acclimate to employees working from home, commercial real estate is a different story. Site selection and touring is an integral part of an industry that thrives on interpersonal connection.

Additionally, old commercial real estate priorities need to adapt to new health guidelines, which can greatly affect the number of people allowed in these spaces.

As a result, the real estate industry has expressly recognized the need for change and adaptation in response to COVID-19, as well as the need to embrace technology.

If your business has been converted from in-person to virtual as a result of COVID-19, you should have an effective and structured plan to transition back into your space.

As businesses adapt to a new normal, a plan can ease the stress of returning to work after the pandemic-related restrictions are lifted. Business owners will need to consider different approaches to reopening properties and making decisions about remote versus on-site jobs depending on the industry and location.

If you are a party to a commercial real estate lease, you will need to figure out how to adapt to accommodate current restrictions and limitations potentially for the remainder of the lease term.

Social distancing and other health department regulations can – and, for many businesses, probably will – extend through 2020 or until a vaccine is discovered. This will greatly affect how many people can be in a commercial space, which will greatly impact revenue potential of tenants and landlords.

The return to physical spaces will more than likely be guided by a myriad of federal, state and local regulations attempting to ensure hygiene, sanitization, health, and safety. Owners should consider whether there are cost effective technological solutions to reduce risks, such as cloud based computing, keyless entry or increasing air flow. Using more cloud-based tools for remote working and collaboration can aid in this difficult and transitional process as not everyone is familiar with the technology. Implementing key fobs for elevators and front doors can help alleviate the spread of the virus and put your employees and patrons at ease. Boosting air circulation or upgrading air filtration for HVAC systems might be options. Talking to professionals about these options and determining the best options moving forward will save you time, money, and stress in the long run.

Another prudent use of money is to determine what are your rights in response to COVID-19 by having an attorney review your commercial real estate lease. Parties may be looking to excuse performance or make changes in response. Failing to comply with the lease provisions may result in a bad situation becoming worse. Analyzing the lease terms with a trained professional will further ensure that you are making the best choices for your business.

The challenges COVID-19 poses to business owners are daunting, but with proper planning and timely action nearly any commercial establishment can overcome them. Company leaders need to utilize data and collaborate closely with tenants to understand their needs, and be continuing to anticipate the possible outcomes to ensure not only the immediate success of reopening but the long-term success as well.

How Colorado’s commercial real estate has been impacted by COVID-19

As Colorado emerges from lockdown, its economy is revving back up, and the state’s outlook is sunny. While other reopened states have seen coronavirus cases rise, Colorado is already in Phase 2, which means restrictions are beginning to loosen. Home sales have jumped in recent weeks, as pent-up demand hits the market.

But that doesn’t necessarily mean we’re headed back to business as usual. The state economy has been profoundly impacted by the pandemic, and that’s especially true for the commercial real estate sector. While it could rebound back to its pre-pandemic highs, it’ll have to make some serious changes to do so. Let’s look at where the commercial market stands now, how it’s evolved over the past few months, and how it’ll have to adapt if it’s going to fully recover.

Recovery has just begun

Before we offer any assessment of the commercial real estate market, let’s note that Colorado’s economy is nowhere near fully reopened yet. Colorado is currently in Phase 2, which has specific restrictions in place for offices and retail. Right now, in-office capacity is capped at 50%, workstations have to be spaced at least six feet apart, and gloves and masks are required for any interactions with outside customers or vendors. To put it simply: things are not yet back to normal.

So when will things be back to normal? That’s hard to say. Some experts say a vaccine is at least 12-18 months away, which means these distancing guidelines could remain in place through 2021. So, we may not be able to assess the big picture effects of the pandemic on the market until late 2022 or even later. But what we’ve seen so far does offer glimmers of hope.

Colorado’s pre-pandemic boom

Fortunately, Colorado’s commercial real estate market went into the pandemic in a position of nearly unprecedented strength.

The first quarter of 2020 came on the heels of a record-breaking 2019. With nearly 7 million square feet of space under construction at the end of March, the industrial sector was riding a 40-quarter streak of positive leasing activity. In addition, most industrial tenants in Colorado have been designated as “essential,” and haven’t been as affected by the lockdown as some. And with e-commerce seeing a huge spike, as people do their shopping from their phones and computers, a lot of these tenants could flourish over the next year-and-a-half.

Retail was also riding high coming into 2020, with vacancies at a low 6.6% and an all-time high average asking lease rate of $19.92 per square foot. But as demonstrated by all the boarded up storefronts in downtown Denver, this sector has been hit hard by the pandemic.

The Fed stated recently that about half of all small businesses went into the pandemic with 15 days of cash reserves or less. When the Paycheck Protection Program expires, many of these businesses could fail. The survival of a large swath of Colorado small business may depend on future government support.

Which brings us to the office sector.

Although vacancies had been inching up in the first quarter of 2020, and total sales volume was down 5% compared to 2019, the market overall was still very strong. Nearly 3.7 million square feet of new office space, spread over three massive projects, began construction in the first quarter, and a dozen office properties sold for $827.9 million. This includes Denver’s biggest office transaction in more than a decade: the $400 million Denver City Center deal. And because new office construction has been slowly tapering off since the 2017 peak, there isn’t a lot of excess capacity slated to come onto the market and drag down prices.

But while Colorado’s industrial and retail markets are reasonably sure bets to rebound, post-pandemic, the office market will have to undergo a profound transformation to survive.

Experts say 62% of employed Americans worked from home in April, and many companies are telling employees to stay out of the office through 2020. This is leading to a reimagining of the workplace; not only about how the office is physically laid out, but about who actually needs to be there.

This doesn’t mean offices are going away for good. In Denver, at least, things could more or less even out as some tenants give up their office space, and others expand their footprint to bring density down in accordance with social distancing rules. Many experts say that sharing a physical space is vital to company culture, so going 100% remote could hurt a lot of bottom lines.

Regardless, the look and feel of the modern office is going to change. Say goodbye to open floor plans and get ready for the return of cubicles. Protective partitions and barriers are going to be common, and reception and meeting areas will have to be reworked or eliminated entirely. Short-term leases, as in the WeWork model, and “hot desking” are also likely to wane, as hygienic concerns take precedence.

But these are relatively minor concerns – offices will need a remodel, but they’ll be back. Because Colorado continues to be such a desirable place to live and invest, its entire real estate market rebounded faster than most other states. The only question is, will the resurgence happen in 2020, 2021 or beyond?