2020 vs. 2021 – With a Lot of Experience and Hope for Normality

The past year has taken its toll on many branches of the economy. Subsequent lockdowns, forced remote work, changing consumer behavior are just a few of the surprises. How has Coronavirus impacted  the commercial real estate markets and what can we expect in the new year?

Renegotiations instead of negotiations

In the initial period of the pandemic, we looked at the market situation with some horror and uncertainty about its consequences. The ban on leaving the house and closed offices, as well as the lack of decisions by the management boards of companies as to what space they in fact need, thwarted many plans related to the relocation of companies, complicated earlier negotiations, closed borders and, consequently, delays in the delivery of materials resulted in significant delays in the construction of new investments. The long-term plans of the companies that managed to survive the turmoil have also been revised. Due to the transfer of work to the home office or the inability to run a business due to restrictions, the demand for office space turned out to be not as great as initially assumed, and the need to change the lease terms appeared. Therefore, contracts were renegotiated, aimed at making the provisions more flexible and introducing clauses in the event of subsequent unforeseeable events. The problem, however, is the lack of provisions regulating the legal situation of tenants. Companies are pretty much on their own when it comes to negotiating with the landlord or bank, and nothing will change in 2021. Meanwhile, a solution would be useful to achieve satisfactory solutions for all parties.

Offices still in demand

The demand for office space decreased by 40% as a result of the pandemic and the accompanying restrictions. It is true that there is a lot of movement in terms of subletting, but this is a phenomenon that always occurs in the event of any slowdown in the economy, which disappears with the return to normal. However, the decrease in the number of leased space this year and next year should not exceed 10-20%. As of 2023, the situation on the office market should return to the pre-pandemic state, provided that the society is “vaccinated”, we will not be surprised by another crisis, and company managements will be able to make bold decisions regarding the volume of leased space.

What has definitely changed is that the approach to the lease period needs to be more flexible. Thus far, standard five-year lease agreements have been concluded. Currently, as a result of remodeling work into remote work home or a hybrid system, and the shock of the pandemic and its effects, tenants do not want to bond for such a long time. The number of contracts for a period shorter than 5 years is increasing. Flexibiura, popularly known as co-working spaces, are also becoming more and more popular, as they do not force tenants to have as restrictive lease terms as a standard contract.

Back to the office

The year 2020 has certainly brought great changes in the area of ​​work management. The compulsory, in most enterprises, reorganization of work into work from home turned out to not only be feasible, but also prevented major losses. In 2021, however, the trend of remote work will be reversed. Initially adopted even with considerable optimism, the model turned out to be not free from disadvantages, and employees are strongly divided in their approach to this method. Just over 50 percent prefers the hybrid work model, and every fifth employee works exclusively in the office. In most cases, this is determined by the lack of appropriate conditions for working from home (especially if both parents and children work in the same apartment during remote lessons), but the lack of interpersonal contacts also plays a very important role, which translates into the effectiveness of the tasks performed and the increase in disturbances. among employees, mainly anxiety and depression. A serious problem related to the organization of remote work is also the constant lack of legal provisions regulating it, despite the situation lasting almost a year. The issues related to health and safety at work, such as the employer’s liability for an employee’s accident at work, are not known, as well as the issues of settlements – there are already (and this year will certainly increase) employees’ expectations regarding compensation for household electricity consumption, office or the costs associated with its equipment, and even … providing the employee with coffee or other amenities that he could count on in the office. A new phenomenon that will develop in 2021 is hybrid work – alternating from home and office. Remote work at the employee’s request 1-3 days a week, and the rest of the work from home will become a permanent feature of the general public. However, this is only possible in certain industries and does not apply to all jobs. Where it is impossible, it has become necessary – and this trend will remain with us – to organize work in accordance with the sanitary regime. Until the public is vaccinated to a degree that minimizes the risk of catching coronavirus, there is no question of returning to offices in the pre-pandemic model. The advancement of technology and the forced growth of online meeting applications and programs have also made us used to the fact that it is not necessary to meet in person to make arrangements. Another advantage of online meetings is the saving of time, which is not wasted traveling the entire city from meeting to meeting. This means that this method will become more permanent. Most likely after a moment of euphoria for face-to-face meetings, which we have missed after over a year of restrictions, there will be a return to meetings via Teams or Zoom. Perhaps soon someone will develop a dress code for online meetings from the waist up.

 

E-commerce versus shops and shopping malls

The past year was certainly a prosperous year for the warehouse market and this trend will continue. As a result of the closure of stores and shopping malls, many companies moved their sales online. Some planned this in advance, and the pandemic only sped up their plans, others were faced with the choice of “to be or not to be.” Therefore, in addition to IT systems, warehouses for storing and sorting goods have become necessary for them. It was therefore possible to notice a huge increase in the rental of warehouse space throughout Poland and the start of construction of new investments.

Unfortunately, the retail markets suffered quite the opposite fate, which – as a result of the closure of shopping malls and large-format stores – faced an absolute crisis. Many tenants withdrew from lease contracts as a result of the collapse of their companies or the closure of some stores and service points. Most of them recorded at least large drops in turnover, forcing them to renegotiate their contracts and resort to bank securities. The change in consumer habits, directed towards e-commerce, may additionally not help this part of the economy to recover from the crisis in 2021.

The past year has taken its toll on us. Even if not financially, we felt it very mentally. Uncertainty about the future of economies, the long-awaited end of the pandemic that is still far from over, has had an impact on everyone – from children to seniors. Hope for the new year is certainly given by vaccines that will allow the lifting of restrictions and at least a partial return to normalcy. The expected government support for the industries that have suffered the most (e.g. fitness, training) and without it will not be able to continue their operations, and thus continue to lease the occupied space, is also important for the office and retail market.