It took a year, but the unrelenting stress the COVID-19 pandemic has placed on commercial real estate leasing—and even its usage – has finally showed up in the form of lower asking rents. This happens in every recession when landlords hold on to their optimism as long as they can before they simply must bend to market forces and lower their rents to meet flagging demand. Here is how
the rent breaks are showing up in each of the major commercial property types:
Retail
The pandemic effectively killed off a measurable percentage of businesses of all types that were shut down and starved of life-giving customer traffic. All shopping districts (except perhaps The Grove!) are experiencing high vacancy and are competing for tenants. And the higher the pre-COVID rents, the more dramatic the drop. In the Platinum Triangle of Beverly Hills (except
for Rodeo Drive where rents are other-worldly), monthly rents have dropped from an average of $12.00 per square foot to about $9.00 per square foot. That is still higher than most parts of town but…well, it’s Beverly Hills.
Office
This fact applies to all three property types: when you read that the countywide office building vacancy rate is 18%, that doesn’t mean that every building is 18% vacant. The most desirable buildings (building and neighborhood amenities, modern electrical and mechanical systems) within the most desirable submarkets are likely to remain at or near full occupancy but the less desirable
buildings in lesser submarkets might be 50% vacant...or worse. So you can certainly bargain hunt, but be mindful of what is important for your business.
Industrial
Sorry to disappoint, but industrial vacancy rates have remained around 2% throughout the pandemic because logistics and distribution have been what has kept our Amazon deliveries dropping on our doorstep. Industrial rents have not dropped; to the contrary, they have been creeping up over the past year. If you find a space that suits your needs, jump on it because it won’t remain on
the market for long.
It’s still a jungle out there. Get a good tenant rep broker with a sharp machete on board to be your guide.
