Most of us became aware of Covid 19 on March 11 of this year when the World Health Organization first reported the rapid spread of the Covid 19 pandemic to 6 continents. However the 1st cases of this new or “novel” coronaviruses were identified as far back as November 2019. [The proper name for this particular virus is “Severe Acute Respiratory Syndrome Coronavirus 2 [ SARS-CoV-2]”. In the medical community the virus is termed coronavirus disease: COVID-19.
First identified in the subtropical Chinese city of Wuhan, Capital of Hubei province; where the first cases were a cluster of pneumonia linked to a wholesale fish & live animal market. [Most forms of these respiratory illnesses are transmitted to humans from animals in one way or another.] This is not the 1st pandemic we have experienced & recent examples include SARS & MERS-CoV. [A more serious pandemic occurred in 1918 ; the Spanish flu which killed nearly 40 million people!]
The impact on the CRE sector was almost instantaneous & changes will likely be permanent because there's a high probability that we will never return to the "normal" that CRE professionals once knew.
Short-Term Impact
One short term impact is that many businesses may “lock down” permanently or close, while the remainder have begun re-evaluating their premises. [ Experts are predicting a resulting drop in demand as many will re-negotiate leases.]
However it is possible that the recently announced wage subsidy for businesses announced by the Government will mitigate some short-term impacts. The Canada Emergency Commercial Rent Assistance Program ** (CECRA) has been introduced to cover a portion of employee salaries intended to support businesses who lost revenue due to the COVID-19. By providing forgivable loans to commercial property owners who will lower or forgo rents of businesses for April, May, & June. [**Applies more to retail & healthcare & the exact details are still under consideration: the final outcome of this program as it relates to the office market is still an open question.]
Long-Term Impact
Over the long term most businesses, including those involved in commercial real estate will face challenges as planning takes place to modify workspaces & processes to enable all- important “social distancing” and other measures. [For those working from home the impact on each organization remains to be seen.]
However businesses are being forced to transform themselves quickly & will need to make assessments of their office or operational premises promptly to adjust for post COVID-19 operational norms and finding solutions for office and the workplace. [Occupancy "footprints" can be expected to change & any long-term modifications will require close attention.]
5 Questions Tenants Will Be Asking Themselves
- What are the cost savings to have some of our workforce operating from home?
- Is our current office space properly designed & equipped for our future needs?
- Do we have the right technology?
- Will providing a remote workplace increase my talent pool?
- Could a flexible hoteling desk system work better than having everyone having a separate desk?
Conclusion
It's very likely we will look back at the world before March 11, 2020 & the place we live in after that date. It is possible that the Canada Emergency Commercial Rent Assistance (CECRA) will mitigate the impact to a certain degree.
Our next instalment will discuss some of the steps you can take to protect your employees and cash flow during this crisis as we move forward.
