The coronavirus pandemic has had a profound effect on commercial real estate. Office buildings, for example, are suddenly facing unprecedented vacancies as many companies maintain a remote work setup and refuse to commit to longer-term leases in light of uncertainty. Plus, some companies are realizing they don't, in fact, need to maintain office space as their employees adapt to remote technology.
Shopping malls are struggling, too. Many consumers feel unsafe shopping in indoor environments, and capacity restrictions are limiting revenue for retailers. And consumers are no longer flocking to city center shopping districts in droves for hours of retail therapy. These days, a lot of that purchasing is being done online from the safety and comfort of people's homes.
All of this spells trouble for commercial landlords, who risk not just near-term vacancies but serious rent shortages as the pandemic rages on. If office building tenants don't re-sign leases, landlords may need to take a hit on rental prices in an effort to attract new tenants. And if retailers lose too much revenue, they'll fall behind on their rent payments, too.
Parking garage usage wanes
But it's not just buildings, malls, and stores that could be a trouble spot for landlords; parking garages are taking a serious hit during the pandemic as well. If their struggle intensifies, that could be yet another source of absent rent for commercial landlords who rely on that income stream.
The fact many workers are no longer coming into an office building to do their jobs means they're not spending money at nearby parking garages to store their vehicles for the day. Similarly, less foot traffic at malls and city shopping centers means nearby parking garages are suffering their own decline in business, to the point where they, too, may have to withhold rent.
The problem is especially rampant in Manhattan, where parking garage operators say they've lost thousands of monthly customers to a mass city exodus. Over the past few months, New York City residents have been abandoning the island, heading over to the suburbs in search of more space and fewer people to share the sidewalks with.
Of course, parking garages that cater to monthly customers may be faring better during the pandemic than those that rely on daily customers. But still, city garages across the country are apt to struggle as people continue to stay home and avoid crowds. In time, some businesses may be forced into bankruptcy. Such has been the fate of a number of retailers, many of which have access to far more capital than parking garage operators.
The bottom line
To be fair, retailers also have inventory costs to contend with. But if people continue to stay away from office buildings, malls, shopping districts, and city centers, parking garages are apt to see a major decline in revenue. And that's a scenario the landlords who rent to them need to prepare for.