Urban Revival in Big Cities
Throughout history, there has been exponential growth of large cities in America. Only in recent years have we started to see a shift from cities to urban environments. The cost of living has become increasingly expensive due to the growing size of the city and needs of the people in them. There has been dramatic growth in technology that has not only changed the way, but also the location in which employees can work. The COVID-19 pandemic amplified some of the disadvantages of living and working in densely populated cities. The success of real estate owners and landlords is directly correlated with the success and health of these cities.
Success for cities and those tied to them will depend on bold new approaches to city living and development. To thrive in the long-term, one pressing question for landlords is how to retain current tenants and attract new ones. Local governments and real estate stakeholders must keep these changes in mind as they move forward in trying to retain existing residents and attract new ones.
While cities and commercial real estate stakeholders are very different entities with differing pathways to recovery, there is one step both need to take: continuing to embrace digital transformation. Cities can help reassure prospective new residents and businesses by touting their use of technology to provide transparency and services that will help residents face the next crisis. For landlords and property managers, whether you’re undertaking enhancements to lease and debt agreements, working with tenants to offer them more flexibility in space uses or considering repurposing your property, technology can provide a fundamental understanding of how specific property sectors changed due to COVID-19.
One of the challenges landlords and real estate professionals face is attracting and keeping existing tenants. The most obvious tool in any landlord’s toolbox for boosting occupancy is to lower rent, which is exactly what many have done in response to skyrocketing vacancy rates. The market is very competitive among landlords competing for qualified tenants. Concessions—free weeks of rent, waived application and/or broker fees, reduced security deposits, free parking, and gift cards—play a pivotal role in securing tenants. However, landlords should watch the market closely before offering rent discounts, and even then, it’s imperative that those discounts be applied only to leases of one year (or less). Make sure lease agreements clearly spell out the terms under which concessions or discounts are offered. Once concessions are offered it is very difficult to rise back to market prices and offerings.
Some commercial landlords are currently struggling with low occupancies and need to shore up their finances to ensure long term preservation. However, on the residential side, there currently exists numerous local areas that are seeing increased demand for housing as more workers are looking at establishing remote work environments. Beyond that, landlords will need to have a fundamental understanding of how their property sector changed due to COVID-19 and offer more flexibility in space usage, lease agreement terms and other areas to attract and retain tenants. Technology can help facilitate the process and drive efficiency.
COVID-19 accelerated migratory trends and showed without a doubt that big cities can’t rest on their laurels. Big cities are in the midst of a prolonged lull in demand from new residents and businesses, which will continue to have a deep and broad impact on everything from rents to government services. How long that downturn lasts will depend on the actions government entities, economic development agencies and even business owners themselves take—or don’t take—in the coming months and years.