The prolonged COVID-19 pandemic has continued to have a strong impact across the real estate industry, from construction and brokerage operations to the marketing of listings and property closings. That uncertainty presents special challenges in working with existing tenants of leased space.

Building management professionals and tenants themselves have stepped up to outfit properties to support the safety, comfort and overall well-being of their occupants, whether they are workers, customers or short-term visitors.

Today, a strategic focus on retaining tenants and attracting new ones is paramount. In a nationwide survey of 450 building managers and real estate consultants conducted in the summer of 2021 by Blue Skyre IBE and market research company HarrisX, a whopping 94% said their properties have either already or were in the process of upgrading HVAC filtration systems. Two-thirds of buildings have hand sanitation stations and frequent cleaning of high-touch areas, and 62% of those surveyed say temperature checks were required to enter the office.

A full 60% of property managers reported having a documented contingency plan for dealing with COVID-19 surges and 30% were preparing one.

Renegotiating lease terms

As tenants review their long-term space needs and seek changes to their real estate footprint, flexibility has become the norm. With in-office head counts expected to be reduced for the foreseeable future, it’s important to stay open to renegotiating lease terms early to satisfy tenants who might otherwise look to cut and run. The option to sublet their existing space, even for a limited period, has become appealing, especially for tenants unsure of their longer-term space needs.

Existing office tenants with traditional three- to five-year leases are having a much easier time shortening those commitments than they have in the past. In the retail sector, investors have reason for optimism. Net new-store openings exceeded closings in the fourth quarter of 2021, and leasing is showing signs of improvement.

Sale-leaseback option

Another option gaining traction is the sale-leaseback. A struggling business can improve its cash position by selling its owned real estate while retaining the right to use the property through a long-term lease. Investors seeking quality, income-producing property with a tenant willing to sign a long-term lease may find this an attractive opportunity. These commitments are usually 10 to 15 years.

What’s influencing office and retail recovery

The principal factors needed for office and retail recovery fall into three main areas:

Striking a balance between owner and tenant needs: Property owners are currently focused on tenant retention at all costs, but they also must satisfy investors.
Offering plentiful amenities and concessions: Owners and building managers will continue to be generous with concessions and keep rent hikes minimal in the next few years, until tenant demand notably increases. On-demand concierge and delivery services that sprang up in the pandemic are likely here to stay.
Remaining patient: Organic business growth may not be sufficient to generate absorption for current vacancies. In the absence of major industry shifts or a new industry entering a local market, population growth will be necessary to absorb the oversupply and bring down vacancy rates, especially in large urban centers.

Digital adoption accelerated by the pandemic has had enormous consequences for work life, consumer habits and the spaces people occupy. And attention to a building’s carbon footprint has become an essential component of any real estate footprint conversation.

Health and safety protocols pertaining to a structure, whether a new build or a retrofit, now double down on concerns like air filtration, insulation and other many other energy-efficiency priorities. Higher green building standards are not only good for the environment, they’ve become essential for business. The investor community’s expectations are changing along with the public when it comes to sustainable practices that will continue to matter long after the pandemic has subsided.

Looking for ways to adapt?

Wipfli can help you navigate real estate decisions during a time of dramatic market and economic volatility. Our advisors help guide your strategic planning and assess trends that matter most to your business. Making smart investment decisions requires thoughtful, proactive planning, not reactive changes in response to immediate events. We’re here to help you and your investors stay on track for the long run. Learn how we help.

Cory Bultinck is a partner in the Minneapolis office of Wipfli. You can reach him at cbultinck@wipfli.com.

The “Texas Miracle” that defined the economic prosperity of the Lone Star State has cut a wide swath across all asset types. Beyond the pandemic, no asset type has realized more seismic changes in recent years than retail. From disruption in technology to consumer preferences, the space devoted to purchasing goods and services continues to evolve. While Texans share a common bond, the retailers and real estate community in every region of the State have had a unique experience navigating the choppy waters left by the pandemic.

Austin

Austin’s retail market remains on firm footing. Vacancies fell to about 3.5%, well below the national average of 4.5%, and are among the top-10 lowest in the country. The market has seen some of the strongest demand over the past year, with about 2 million square feet absorbed despite disruptions from COVID-19 variants. Substantial population and economic growth have kept the market strong over the past few years.

Swift action by Congress to get money in the hands of individuals and PPP loans into the hands of businesses helped keep the market afloat during the early days of the pandemic. However, the market hasn’t been kept strong just due to government stimulus. Significant expansions in the tech sector, wage growth, and household formation have buoyed retail prospects. Consumers have resumed normal spending patterns, driving leasing activity to within a short distance of pre-pandemic norms. Click to read more at www.rednews.com.

An Austin, Texas man was sentenced to 70 months in prison and ordered to pay $5,052,366.92 in restitution for his role in a fraud scheme.

According to court documents, from 2012 until June 2018, Jason Michael Schubert, 47, devised a scheme to bilk hotel investors out of millions of dollars. Schubert identified potential investors by conducting seminars on how to make money from investing in hotel properties, known as “Rich in Five” seminars, charging the participants substantial fees to attend. Schubert then solicited money from the participants for investing in preexisting hotel properties that he would manage and operate while claiming that investors would profit with little effort on their part.

However, many of the hotels were older and in substantial disrepair. Although Schubert had no hotel management experience, he represented that investor funds would be used to renovate the hotels. Instead, he misappropriated the money by paying himself significant “management fees.” Schubert’s fraudulent activities depleted investor funds, causing the hotel properties to go into foreclosure with a loss of over $5 million to investors. Click to read more at www.insurancejournal.com.

How healthy are offices across the United States? And are employees more likely to return to the office – at least on a part-time basis – if their employers take the steps necessary to boost indoor air quality, improve natural light and surround their work areas with green spaces?

These are questions tackled by Joanna Frank, founding president and chief executive of the Center for Active Design in New York City. The center is the operator of Fitwel, a certification system originally developed by the U.S. Center for Disease Control and Prevention that measures how healthy offices are.

The health of indoor working spaces is a hot topic today, thanks in part to the COVID-19 pandemic and the desire of employers to bring their workers back to the office after so many have worked remotely for more than two years.

Consider these facts from the Center for Active Design:

Indoor air pollutants are generally two to five times greater than outdoor levels of air pollution.

Poor light quality and uninspiring views in offices cause employees to miss more time from work with illnesses.

Employees greatly benefit from natural, green surroundings, which are often a small investment for companies and building owners to make.
Frank said that employers and building owners should invest in ways to improve the health of indoor office spaces, especially if they want to bring their workers back to their conference rooms, cubicles and desks.

To do this, though, owners and employers need to understand what makes a building or office space healthy. Frank said that there are three keys.

No one-size-fits-all solution

First, building owners must address of the needs of the occupants of a building.

“This lets you know that this is not a one-size-fits-all solution,” Frank said. “You have to respond to the needs of the users of a space.”

Secondly, it’s important for employers and owners to enact strategies that have already been proven to produce cleaner air, happier employees and a more productive workplace. Employers should search out the evidence to prove that the investments in healthy spaces they are making will provide results.

And maybe most importantly, employers and building owners must measure the impact of their healthy workspace initiatives. They must also share these results with their tenants and employees.

This means that building owners must be able to show their tenants that healthy initiatives are helping them attract and retain employees and that these workers are more productive now that healthy initiatives are in place. And employers must show their workers that their indoor air quality ratings are high, more outdoor light is bathing their offices’ interiors and that employees are calling in sick less often.

The key here? Companies are not likely to pay more to lease office space just because it is healthier. And building owners are not likely to invest in green space, air-purification spaces and indoor gathering spaces just to be nice. Owners and tenants need to see that these healthier additions will pay off, whether this means giving owners additional tools to attract more tenants and charge higher rents or giving tenants the amenities they need to convince employees to return to the office or attract and retain the best talent.

“The more research-based strategies you have promoting health, the higher the degree of tenant satisfaction,” Frank said. “The more things you do to promote health, the more likely you are to retain workers. You must be able to demonstrate those business outcomes if you are a building owner. Real estate needs that proof. Real estate demands that you can show that return on investment.”

Fortunately, Frank said, this isn’t difficult to prove. As she says, there has always been a direct correlation between the health of a business’ workers and their productivity.

What has changed since COVID, though, is demand: Workers are now demanding healthier office environments.

“People are now demanding that their companies be able to demonstrate how they are promoting and protecting their health,” Frank said. “Before COVID, we weren’t seeing individuals asking for a healthier work environment. That has now changed. That is a game-changer. We knew how to create healthy office spaces before COVID. We had a massive body of evidence showing how to do this. The difference now is that the workers are demanding this, which is persuading companies to explore their options.”

And employees want proof that companies are taking steps to promote their health, Frank said. It’s no longer enough for companies to say that they are taking steps to boost indoor air quality, for instance. Today, they must show their workers actual statistics and test results proving that their claims are true.

“It has changed from health being a nice-to-have before COVID to being a must-have today,” Frank said. “It used to be that building owners would think about healthy building measures after they took care of everything else. But now, owners can lose their Class-A tenants to other buildings that are demonstrating how they are promoting health and wellness.”

Creating the healthy workplace

What are some of the steps, then, that building owners can take to boost the health of their tenants?

Frank said that companies and their workers today are focused heavily on indoor air quality. It’s important, then, for building owners to improve the air-purification systems and air flow in their buildings. They need to bring more outside air into their workspaces.

This will boost not just the physical health, but also the mental health of building occupants, Frank said.

High-quality natural light is important, too, for the physical and mental health of occupants, Frank said. And offices need outdoor light to flood their spaces, not artificial. Frank said that studies have shown that natural light is directly related to employee productivity.

Another key is that building occupants have access to nature and green spaces. This could be a small rooftop garden or even the addition of indoor plants.

“You can do this in any building,” Frank said. “It doesn’t have to be new construction. You can bring nature into a space very effectively by using green walls, plantings, whatever you have. Bringing nature into the office is very important for employees’ mental health and feelings of well-being.”

What also matters is building trust, Frank said. This means that building owners and employers must show workers real numbers showing how effective their healthy measures are. And they must share these numbers even if they show that a particular measure isn’t having as much of an impact as they had hoped.

And if the numbers show bad news? Employers and building owners must share their plans for replacing or improving whatever measures aren’t working, Frank said.

Consider indoor air quality. Building owners and employers can’t just say that they are using a certain level of filtration. They must explain why they are using it, Frank said, and what their air-quality goals are.

“People have become very educated about indoor air quality,” Frank said. “You need to provide details. You need to tell tenants about how much outdoor air you are bringing into the building. You need to be measuring indoor air quality in a consistent way. And what will you do if you are not achieving the results you want? That is a tough one for building owners. There is risk involved. You need to have policies in place explaining how you will respond if your system provides less-than-optimal air quality.”

How healthy are offices across the United States? And are employees more likely to return to the office – at least on a part-time basis – if their employers take the steps necessary to boost indoor air quality, improve natural light and surround their work areas with green spaces?

These are questions tackled by Joanna Frank, founding president and chief executive of the Center for Active Design in New York City. The center is the operator of Fitwel, a certification system originally developed by the U.S. Center for Disease Control and Prevention that measures how healthy offices are.

The health of indoor working spaces is a hot topic today, thanks in part to the COVID-19 pandemic and the desire of employers to bring their workers back to the office after so many have worked remotely for more than two years.

Indoor air pollutants are generally two to five times greater than outdoor levels of air pollution.

Poor light quality and uninspiring views in offices cause employees to miss more time from work with illnesses. Click to read more at www.rednews.com.

Yes, inflation is battering the U.S. economy. The country is still dealing with COVID-19. And Russia’s continued attack on Ukraine brings its own set of worries. But despite all this turmoil? The U.S. multifamily market continues to boom.

In its April Multifamily National Report, Yardi Matrix said that the average asking apartment rent in the United States rose $15 in April to an all-time high of $1,659. This is an increase of 14.3% from the same month a year ago.

In the largest 30 metropolitan areas in the United States, monthly rent growth was up at least 8.8% during the last year in all but one. And this increase in monthly rents was remarkably consistent. Yardi Matrix reported that rent growth was positive in each of these large metropolitan areas during the last one-month, three-month and 12-month periods.

Of course, not all markets are equal. Yardi Matrix said that Miami led the way in April with a 24.6% year-over-year rent increase. Overall, though, asking rents increased by 20% or more on a year-over-year basis in five of the largest 30 metropolitan areas and 10% or more in 26 of the biggest 30 markets.

The rent growth wasn’t as robust in all Midwest markets. Yardi Matrix said that year-over-year rents increased by just 4.7% in Minneapolis-St. Paul and just 8.8% in Kansas City, Missouri. These ranked among the lowest percent increases among the biggest metropolitan areas in the country.

What does the future hold? Yardi Matrix said that the fundamentals are still in place for steady growth in multifamily rents. Most importantly, the country still faces a shortage of new single-family housing. Yardi Matrix reports that an average of 16 million to 17 million new homes were built between the 1980s and 2010. That number fell to less than 11 million in the 2010s.

This has left the United States short of several million single-family homes. Leonard Kiefer, deputy chief economist at Freddie Mac, says that the country went from a surplus of 1.9 million units of housing in 2010 to a shortfall of 3.8 million units in 2020.

You can blame the financial crisis of 2008 and 2009 for the shortage of newly built homes. During and after the crisis, banks slowed the amount of financing they made available for single-family and multifamily housing. That resulted in a slowdown in new residential construction.

Today, a shortage of land and the high cost of construction materials and labor is contributing to the slowdown in residential construction. Developers also face regulatory hurdles and NIMBY protests in many areas.

This all adds up to higher costs for housing, including of the multifamily variety. And these pressures are showing few signs of lessening, meaning that monthly apartment rents aren’t forecast to decline anytime soon.

What does this mean for renters? They can expect to pay more for their units, especially if they plan on living in a major metropolitan area.