We continue to venture into uncharted waters with the COVID-19 pandemic and the related social shutdown.  The effects on commercial real estate will play out similar to a recession, albeit more like the shallower post 9/11 recession than the great recession of 2008.  Below are some foreseeable affects on the office leasing markets in major metropolitan markets, including Los Angeles:

 

• Landlords are being advised by their leasing executives and banks alike to working with existing tenants and keeping spaces occupied.

• Some tenants are or will be approaching landlords for rent reductions and abatement, though landlords are not keen on being “first line” relief and are conditioning rent abatement on evidence that tenants are availing themselves of the SBA Payroll Protection and disaster relief loan programs.

 

• The financing position of a landlord with their bank will influence their latitude in negotiating concessions.

 

• Landlords may be open to enhancing concession packages on negotiations already in progress.

 

• Tenant Improvements already in progress may continue, but uncertainty remains a limiting factor with new TI projects and permitting requests. Anticipate delays and holds.

 

• The availability of subleases will increase as some companies continue to work from home, shrink in size, or otherwise need to reduce their expenses.

 

• Force Majeure has become a key talking point although it is worth noting that language in most leases pertaining to Force Majeure specifically excludes payments of rent from the relief tenants can claim for this type of business interruption.

 

• Business interruption insurance coverage (required of the tenant in most leases) is being tested as a result of the pandemic.

 

• Many office tenants that are early in their property search process have adopted a “wait and see” philosophy, time permitting, i.e. lease expiration.

 

• Several office tenants that are deep into their negotiations are pressing forward, with tweaks in timing and concessions.  

 

• Short-term lease renewals will become more common among office tenant requests. 

If you or your clients are feeling unsure about their options or strategy going forward with respect to their business real estate, feel free to reach out to me for guidance at (213) 258-6921.