• Thu. Dec 1st, 2022

Commercial real estate market faces uncertainty amid coronavirus


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The Chace Mill office in Burlington, a property owned by Redstone. Photo provided

The coronavirus has masked aspects of Vermont’s commercial real estate market in uncertainty as landlords scramble to keep current tenants amid the economic turmoil in industries such as hospitality and retail.

Landlords say they have renegotiated rent with many restaurants and retail stores, which are working to stay open with restrictions. Other aspects of the market, such as the impacts on pricing and the future of offices, remain uncertain, brokers say.

“This has been a significant hiatus,” said Brad Minor, director of South Burlington real estate appraisal and analysis firm Allen, Brooks & Minor. “Some segments of the market weren’t really able to function for an extended period of time. “

Erik Hoekstra, managing partner of Burlington-based property development and management group Redstone, said his company was working with tenants “on a case-by-case basis.”

“We try to understand what’s going on with each tenant and come up with a plan that works for them and that works for us,” Hoekstra said. “The challenge for us is that the rent we collect from our tenants pays the bills. We still have property taxes, insurance, mortgages and all kinds of things that we have to pay. So it’s very difficult for us to write off the rent outright, unless we can get a pardon somewhere on our side of the equation. “

“A lot of it is trying to provide short term relief where we can and work out some kind of longer term payment plan for tenants,” Hoekstra added.

Joe Larkin, chief financial officer of Larkin Realty, said the flexibility offered by banks on certain mortgage payments allowed him to increase rental flexibility. “But that can’t last forever either,” he said.

The possibility of business closures – especially moms and dads with low cash reserves and businesses in the retail and hospitality industries – worries many homeowners.

Market research conducted by Allen, Brooks & Minor showed a slight increase in vacant sales positions in Chittenden County. The commercial vacancy rate fell from 5% to 8.1% between December and June and the office vacancy rate increased by about 1% during the same period, according to the study. (Minor pointed out that the increases may not be solely attributable to the virus, and that some impacts may not yet be visible given the length of many commercial leases.)

“I am very concerned about companies that, at the end of the day, just won’t be able to make it happen, despite everything they have to try to survive,” Hoekstra said. “On our side, that may mean that we take back space that we thought we had rented for years, and then try to figure out how to fill that space at a time in the economy when things are rather slow?”

The pandemic has also cast uncertainty over the future of office space use. Some real estate agents are concerned that companies will make the shift to remote working that has taken place amid the pandemic permanent as they seek to cut costs.

But Meg McGovern, a senior partner at Donahue & Associates, said she expects the need for social distancing in the workplace to reverse any reduction in demand resulting from the shift to remote working.

A building in Burlington’s Church Street Marketplace where Donahue & Associates is currently located. Photo provided

“At first I thought everyone was going to downsize – everyone was going to say, ‘we need less space,'” McGovern said. “But in reality, I think they’re going to need the same space because I think some people will continue to work from home – especially the vulnerable – and then the people who come into the office will have to space more apart for that. is probably the same.

The pandemic has also hampered some ongoing business developments. David White, president of White + Burke – a brokerage and business development firm – said the three big development projects the company was working on this year have all been disrupted in one way or another by the virus .

“It’s been a mix of cancellations of potential projects or transactions and suspensions to see how things go,” White said. “There aren’t a lot of deals going on at the moment.”

Minor, Allen’s director, Brooks & Minor, said the impact of Covid-19 on commercial property prices remains to be seen.

“Real estate is not like the stock market where there is all of this information that is readily available instantly about what is going on with prices,” he said. “It’s an imperfect market with few transactions and a scarcity of data. “

“Much of what’s going to unfold is still dynamic and ongoing and won’t really be apparent for months, if not years,” Minor said.

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