Effects of COVID-19 on property markets
Introduction
The Corona Virus disease (COVID-19), is a pandemic that has globally posed a threat to human lives. Apart from the risk of death, the pandemic has affected and may continue to impact world economies and different sectors of finance (Kumar 4). In the business realm, the outbreak has led to the loss of jobs, stock and supply chain disruption, consumer uncertainty, isolation, and travel bans. Commercial landlords have been affected by the COVID-19 pandemic because tenants have been rendered incapacity to pay rent and the lack of viral epidemic guidelines in lease agreements.
Government Response to COVID-19 And Its Effect on Commercial Landlords. Property markets have been affected by the government’s response to the pandemic. The enactment of strict social distancing laws has affected rental income in significant ways. First, businesses that require the presence of sellers and buyers have closed (Bagnall). Although it has been different for online businesses, all businesses have been affected either directly or indirectly. The closure of businesses has been a challenge to property owners, as tenants have been rendered the inability to pay rent. It is a legal obligation for tenants to pay rent. However, the government has intervened by encouraging tenants and landlords to discuss rent relief.[i]
If the pandemic continues for the next five months, it is projected that tenant fall over, and loss of rent should be anticipated (Bagnall). In general, there are the possibilities of a rise in house vacancy levels, deferred rents, abatements, and loss of income.
The Corona Virus pandemic would facilitate structural changes in tenant laws, and real estate markets based on projectable risks. Real estate markets would be more considerate of businesses or tenants offering essential services, such as healthcare institutions (Lind 43). Businesses providing critical services are still operating and have been insignificantly affected by the pandemic. It is more likely that after the COVID-19 disease, property owners would seek for tenants with diversifies income, such as those offering essential services or those working for the government. Therefore, leaseback and sale arrangement may also be improved to facilitate capital reinvestment, balance sheet, and cash flow.
Landlords and property owners are facing challenges on how to balance the needs of businesses and workers, protecting the safety and health of staff and tenants. The options they have ranged from how to close properties to sharing of information with the tenants (Lind 43). To address the Corona Virus outbreak, landlords and property owners should enact business continuity and emergency management strategies and plans (Bagnall). Governmental responses towards the development of the pandemic are continuously changing in Washington. Therefore, landlords and property owners should assess risks and garner up-to-date information that would help in sustaining business operations and protecting staff and tenants efficiently and quickly.
Implications of COVID-19 on Commercial Landlord Tenants
Globally, the Corona Virus has had adverse effects on different aspects of life. Capital markets and commercial real estates in Washington State have been affected by the disease outbreak. Real estates in the United States have a significant amount of leverage. Therefore, landlords should take care of their property to protect their reserves (JLL Research & Strategy). In the next few months, they should anticipate problems and shortfalls that distress tenants. It is projected that apart from landlords, retail tenants would also be under stress. Clients and consumers would have inaction towards retailers, and therefore, loss of income to retail tenants. Landlords should study their leases to comprehend their lawful rights during the time of the Corona pandemic. Social pressure and governmental laws have limited the rights of landlords. Extraordinary measures taken by the government aims at helping people, especially tenants, and businesses to withstand the financial impacts of the pandemic (JLL Research & Strategy). Discussions on whether commercial landlords should be denied the rights to evict tenants are underway. In summary, some residential landlords have been rendered the inability to evict tenants.
Communication between landlords and tenants is critical, as it would offer creative agreements and solutions that would work for both parties. First, tenants need room and space to maintain their operations (Stoebuck 291). Landlords may have different obligations and loans that they are required to pay. Tenants may seek appropriate rent relief to abate temporary hardships while landlords may seek partial payments of rent. In the next few months or years, laws and regulations governing commercial leases may change. After the COVID-19 pandemic, landlords could develop measures of recouping the money and resources they have lost during the entire period of the Corona outbreak (JLL Research & Strategy). Overall, when the economy rebounds, landlords would be keen to establish an alternative arrangement that would benefit them financially.
Although it is hard to predict how long the COVID-19 pandemic would last, it is probable that by the time it ends, tenant delinquency or vacancy rate in commercial property would rise. People would not have sufficient funds to establish new businesses or sustain their existing facilities. Additionally, many people would have more debts in comparison to their income. Lenders should communicate with landlords early to establish loan payment modification appropriately. The commercial leasing sector would be among the most affected industries (JLL Research & Strategy). With open communication, lenders, tenants, and landlords can thrive through the pandemic. In conclusion, failure to discuss the issues of loan and lease may lead to irreparable harm in the future.
Washington State’s Reaction to COVID-19
The Council in Washington, DC, has offered relief legislation that enables inmates to be released early and freezes increases in rent. City leaders have volunteered to provide help to people who do not qualify for stimulus checks and unemployment insurance (JLL Research & Strategy). Additionally, some residents who are undocumented would also be offered support at the challenging times of the pandemic. The world has an uncertain future. For example, the economy of Washington has been shut down. Living in the region in 2022 would probably not be the same, as it is today. Since I intend to live in Washington after graduation, I must prepare for a tough future and uncertainty. Real estate laws would have changed. A person willing to rent the commercial property would be required to have some security that would curb financial losses in case there is another pandemic in the future. Thus, it would need someone to have a business that relates to the provision of essential services to qualifying for rental properties.
Currently, in the state of Washington, parks and nonessential businesses are closed. It is probable that if the number of people infected by the Corona Virus in the United States rises to around two million, businesses may be closed indefinitely. The nature of the Virus has not wholly been established. If the Virus mutates into other strange forms, it would be difficult for scientists and health professionals to deal with the pandemic. Already, the government has spent a lot of resources on hospitalizing citizens that have been affected directly or indirectly by the disease. When the effects of the disease reach a peak, the government would have to spend more resources and implement stricter measures to protect people from joblessness and financial strains (Stoebuck 291). In Washington, landlords in market-rate and rent-controlled buildings have restrictions on controlling rent issues since the public health emergency is in operation. Tenants who were willing to vacate from their units are also restricted from moving to other units. By 2022, mortgage lenders would be stricter on assessing the borrower’s capability of repaying loans. Currently, lenders allow borrowers that have hardships relating to COVID-19 to defer their payments.
Once the world is over with the COVID-19 phenomena, it is projected that people whose finances are not directly affected by the Corona Virus would be in a better position (JLL Research & Strategy). At the end of the outbreak, many business owners and entrepreneurs would have spent all their savings, including the capital, to revive their businesses. Therefore, many businesses would fall, while new entrepreneurs would be rendered incapacity to establish business ventures. Thus, people who had saved during the period of the outbreak would be favored, as the cost of starting a business would be low.
Conclusion
Current property management and commercial lease agreements fail to address epidemics resulting from viral infections. The arrangements do not address the obligations and duties of property managers and landlords regarding the security of guests and tenants and viral infections. The public health obligation of landlords is limited in facilities where tenants are responsible for cleaning and maintenance services. However, the Corona Virus outbreak has led to the issue of whether commercial property landlords should be responsible for their apartments. After the pandemic, it is projected that laws that would allow landlords to be responsible for their property would be implemented. Landlords would be required to always consult with the U.S Centers for Disease Control and Prevention (CDC) for guidelines and information relating to disease control.
Works Cited
Bagnall, Kelly. “Coronavirus/COVID-19: Considerations for Landlords and Property Managers | Insights | Holland & Knight”. Hklaw.Com, 2020, www.hklaw.com/en/insights/publications/2020/03/coronavirus-covid19-considerations-for-landlords-property-managers. Accessed 11 Apr. 2020.
JLL Research & Strategy. “COVID-19 Global Real Estate Implications”. Us. Jll.Com, 2020, www.us.jll.com/en/trends-and-insights/research/covid-19-global-real-estate-implications. Accessed 11 Apr. 2020.
Kumar, Dharmendra. “Corona Virus: A Review of COVID-19”. Eurasian Journal of Medicine and Oncology, 2020, Kare Publishing, doi:10.14744/ejmo.2020.51418.
Lind, Hans. “Rent regulation: A conceptual and comparative analysis.” European Journal of Housing, vol. 1, no. 1, 2001, pp. 41-57. doi: 10.1080/14616710110036436
Stoebuck, William B. “The Law between Landlord and Tenant in Washington: Part I.” Wash. L. Rev. 49, 1973, pp. 291.
[i] Bagnall, Kelly. “Coronavirus/COVID-19: Considerations for Landlords and Property Managers | Insights | Holland & Knight”
JLL Research & Strategy. “COVID-19 Global Real Estate Implications”.
Kumar, Dharmendra. “Corona Virus: A Review of COVID-19”.
Lind, Hans. “Rent regulation: A conceptual and comparative analysis.”
Stoebuck, William B. “The Law between Landlord and Tenant in Washington: Part I