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So It Begins: Welcome To The New Normal For Commercial Real Estate

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A couple of weeks ago I wrote an article detailing how things were going to change for the commercial real estate market. This is now coming to fruition.

We are already seeing the start of trouble with the bankruptcies of a few retailers. Retail space is going to come under enormous pressure as the tenets of malls come under fire.

This is nothing new. Amazon and other online retailers were chipping away at brick and mortar for more than a decade now. However, there is another facet that is going to take a hit.

Office space is going to suffer similar issues as retail. Occupancy is going to decline as a result of technological changes.

Now, we see the first announcement to this effect.

Nationwide is one of the largest insurance companies in the United States. It recently announced future plans of how it will deal with its workforce.

The company occupies 4 main corporate campuses which will still be staffed. Outside of them, however, all other locations in 5 states will be work-from-home.

The company said it will exit most buildings outside of four main campuses by November 1, 2020 and move associates in these locations to permanent remote-working status.

In states that require a physical presence, it announced they will downsize.

The Fortune 100 company said it may also have smaller offices in locations that are required by state plans or business need to have an office location to serve customers.

https://www.insurancejournal.com/news/national/2020/04/30/566954.htm

To my knowledge, this is the first announcement of this nature. It is highly doubtful it will be the last.

The coronavirus forced the remote worker situation which allowed companies to experiment, under fire, with remaking their business.

Since the technology was available for a while now, it was only a matter of time before this caught on. The last couple months have seen workers get accustomed to the technology meaning that it is an opportune time for companies to move in this direction.

This is going to have a severe impact on those who own commercial real estate. With companies downsizing their office space holdings, it will put a dent in the rental market. Corporations are going to find ways to save a large chunk of money each month in lease payments.

Of course, once the ball starts rolling, it will be hard to stop. With excess space, landlords might be forced into dropping their rates on the rest of the space.

It is a situation that can dire quickly. Even a 10% shift in the workforce by companies is going to have a severe impact on this market.

Since most of these properties are leveraged, defaults could start as early as next year as property owners find it impossible to keep the payments up.

Once again, few will relate this directly to technology but it is a technological shift that is making it possible.

Welcome to the new normal.


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