CRE Market Outlook and Down-Market Strategies for Occupiers During COVID-19

by | 31 March 2020

As the impact of COVID-19 continues to escalate and create new markets in its wake, Colliers has developed this resource to include how market conditions are affecting different real estate sectors, as well as down-market real estate strategies and best practices for occupiers and brokerage professionals.


  • Office: The projections of the office market continue to be a “wait and see,” with the belief that the markets will shift towards a tenant market. With more first-time, work-from-home employees than ever before, we are seeing occupiers take the time to reevaluate their space requirements. This could lead to a reduction in space, but it will most certainly result in a change in office behavior. It is far too early to tell, but the more likely result might be staying in the same space, but redesigning the space differently to meet a new emphasis on working together productively, to accommodate for distance and cleanliness. Historically, office rents have lagged behind the U.S. stock market by 6-12 months in past cycles as it takes overall markets longer to adjust to new economies. APAC has started to show signs of weakening markets as they are ahead of the U.S. in coming out of the COVID-19 cycle.
  • Industrial: The projections for the industrial market differ greatly from that of the office market, with landlords becoming bullish that manufacturing will continue to come back to the U.S. and e-commerce will become an even stronger player in the asset class. Due to the bullish nature of this industry, landlords are taking a hard look at short-term “kick the can” transactions in anticipation of a continued tight U.S market in the coming months.
  • Capital Markets: The capital markets sector translates uncertainty into risk. Given the uncertainty surrounding the timetable of COVID-19, and the ensuing short-term and long-term impacts of the shutdown of the economy, there is a definite lack of liquidity currently in the real estate capital markets. That being said, there are still limited deals transacting on the industrial side, particularly those that do not rely on the debt markets for closing.
  • Flexible Workspace: The flexible workspace market is taking the biggest hit and offering the most questions for the future in terms of health and safety for employees given certain models.

Transaction Flow and Landlord Assistance

Many clients are hitting the pause button on non-critical decisions to understand both their long-term requirement needs and allow the markets to playout. Capital intensive projects are being heavily scrutinized with many on hold or pushed down the road.

Thus far, landlords have been cooperative in assisting credit worthy tenants with rent deferral with a “we are all in this together” mentality. The institutional landlords are directing towards a “process” for assistance, which tenants must go through while the mom and pop landlords are nimbler in their response pace to assist.

Additional Real Estate Strategies to Consider

In our previous article, COVID-19 Considerations for Occupiers, we discussed real estate strategy and transaction advisory considerations for occupiers, including how to approach upcoming lease expirations and opportunities for negotiation. Below are some real estate strategies for occupiers to consider during the down market:

  • Consider upcoming lease expirations for closure and remote work for the time being: Explore opportunities to work remotely for extended periods of time without negative impact to productivity.
  • Opportunities for immediate rent relief: Some landlords may consider anywhere from 30 to 180 days of rent deferral and either (a) amortize those months into the remaining lease term or (b) add those months to extend the term of the lease.
  • Short-term lease renewals, and/or reduce sizes of spaces leased: Landlords may be willing to consider month-to-month or short-term lease renewals/extensions, possibly at a discount as well versus no renewal at all.
  • “Blend and Extend”: Reduce ongoing rental rate in exchange for and extended/expanded lease commitment.
  • Lease renewal notice timing: Depending on when the market rate is set following notice of a renewal option, a tenant may be better served holding that notice until later in the market cycle
  • Evaluate existing lease agreements regarding force majeure and rent abatement rights: Consult legal counsel for advice. One of the sources to consider as a reference from one of our trusted global legal partners, Torys, can be found here. Also, potentially seek advice from risk management on potential coverage for business interruption insurance.
  • Evaluate existing lease agreements for additional variable commitments such as parking spaces, gym memberships, etc. Also, request that landlords revise operating expense estimates now instead of waiting to reconcile in early 2021.
  • Sale/leasebacks: A potential for immediate capital infusion depending on the creditworthiness of the tenant.
  • Landlord debt review: A thorough review of the landlords debt and/or upcoming balloon payments may provide negotiation assistance for tenant restructures.
  • Third-party logistics providers for supply chain solutions: For supply chain facilities with upcoming lease expirations, consider third-party logistics providers (3PLs) options at least as a stop gap until conditions are more stable. Many 3PLs specialize in integrated operations of warehousing and transportation services that can be scaled to customers’ needs. Some will also work on limited or short-term contracts.
  • Investigate your risks with flexible workspaces and term obligations: Can you break your obligation or defer it until the office is a safe environment for working in? Do you have less control and transparency regarding who else is occupying? How often is the office being cleaned and how? Can time or people limitations be established for using shared spaces like conference rooms, common areas, etc. to minimize exposure?  Does the flexible workspace operator have business continuity plans (BCP) if the building is shut down? Are there other locations to access if needed?

We will be releasing additional updates as conditions unfold. Our global professionals stand ready to help with solutions as your needs evolve over the coming days and weeks. For more information on any of these strategies or considerations, please contact your trusted Colliers professional and visit our other COVID-19 content on Knowledge Leader and our Colliers’ Occupier Services page on our website.