Office Tenants Feel Optimistic – CRE Searches Uptick in April and May
One way to gauge the effects of the lockdown on the real estate industry is by tracking online activity. According to Google Trends data, the popularity of key search terms for office listings saw an important drop with the onset of the COVID-19 crisis. However, more recent weeks have brought encouraging signs that the market might already be on track for a rebound.
Between March 27 and May 3, visitors to CommercialCafe and sister company Property Shark’s websites were asked to respond to questions about the current crisis and its effect on their office space searches. Their responses suggest a sense of optimism, and a hope that ― despite the slowdown ― things will revert to business as usual.
Although the market is not back yet to pre-lockdown levels, optimism is reinforced by the recent uptick in traffic on CommercialCafe, as well as by a growing number of office space searches reported by Google Trends. Keep reading for more details about how businesses, entrepreneurs and other prospective tenants view the coronavirus crisis’ impact on the commercial real estate market.
Traffic on CommercialCafe Picks Up in April – Four Weeks of Steady Growth
After an inevitable slip ― as news about the virus gripped the public’s attention ― searches for commercial real estate listings on CommercialCafe saw steady growth throughout April. The two-month timeline shows March 15 as the lowest point since the beginning of the crisis. Commercial searches that week went down by 27%, making this the steepest fall in weekly searches throughout the surveyed period. However, by the end of March and beginning of April ― as hopes for a possible re-opening by Easter still lingered ― traffic declined by a much slower pace compared to the previous weeks. Between April 5 and April 25 we witnessed the first uptick. The end of April and first day of May saw a 3% increase in commercial listings searches, followed by another 8% between May 3 and May 9, all signs pointing towards a progressive recovery.
Renters Are Still Looking for the Right Office Space, Although Less Persistently
Google Trends analysis for the terms “commercial real estate,” “commercial property,” and “office for rent” over a period of 12 months ― from the end of April 2019 to April 26 this year ― reveals a drop in the number of searches in mid-March, just as several U.S. states and counties were announcing lockdown and social distancing measures. Significantly, in all three cases, the latest available numbers from Google confirm the upward trend highlighted previously by CommercialCafe’s data, with only a minor dip during the Easter holidays.
As the graphs demonstrate, the popularity of these terms naturally rises and dips throughout the year due to the seasonality of tenant interest in finding a new office space, as well as national holidays ― although not to the degree seen following the lockdown.
44% of Respondents Said They Were Ready to Commit for the Right Office Space
Despite the current uncertainty in the commercial real estate industry, no less than 44% of our respondents said they would be ready to commit to a lease contract if they found the right property for their business needs. Residential markets are even more optimistic, both on the renting and home buying side. RentCafé has recently reported that traffic on the site is well past pre-crisis levels, while Zillow, Point2 Homes and Redfin have signaled increased demand from home buyers.
Only 11% of our respondents said they had postponed their search efforts, while 8% were still looking, but not as actively as before the lockdown. Roughly 28% were undecided and another 8% signaled they were in standby mode, trying to gauge where the market was going in the near future. When looking at these percentages, it’s important to keep in mind the inevitable selection bias — individuals browsing online listings are inherently more likely to be actively engaged with the commercial real estate market even after this period.
Of the respondents to our second question, roughly 38% felt that the current situation did not change their office selection process in any way, while 17% reported visiting fewer locations because of the epidemic. Some 8% of respondents put their selection process on hold for the time being. Approximately 22% said they were aided by virtual tours and pictures in their decision for a new office lease, and 14% have experimented with VR staging and remote viewings in their efforts to find a suitable location.
Our third question tried to gauge whether renters would expect more options and greater flexibility from their new leasing contract. Nearly half of respondents thought business would continue as usual. Some 25% would like a payment deferral clause as an option ― possibly as a response to the requirement of many non-essential businesses to cease activities that can’t be safely transitioned to remote work. Another 19% said their leases should offer a safeguard against eviction if the negative impact of COVID-19 hinders their ability to make payments. Other relevant inputs echoed responses given to the third question, regarding the expectation of a price decrease.
As unlikely as it may seem, not all the changes brought on by crises — such as the one we are currently experiencing — are for the worse. On the one hand, while demand has gone down, traffic and survey data suggest there’s still room for a distinctive sense of optimism from prospective tenants, many of whom have not given up their searches for a suitable office space. On the other, several cities have taken the opportunity to fast track and complete vital infrastructure projects that would have taken several months or years in otherwise busy commercial corridors. This should, in turn, bolster business opportunities once the economy restarts.
Content and strategies shared on NAIOP blog posts are intended to provide information and insights to industry practitioners and do not constitute advice or recommendations. NAIOP and its blog authors disclaim any liability for actions taken as a result of these blog posts.
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Researcher by nature, curious by profession. With years of intense research on the U.S. commercial real estate market behind her, Diana is currently putting her experience to use by writing for the COMMERCIALCafé blog.