August 9, 2022

Preventing Commercial Real Estate Vacancy Loss in the Post-Pandemic World

It is no secret that the commercial real estate industry must adapt to the ebbs and flows of the market on a regular basis. In today’s time, COVID-19’s impact proves to hold a lasting influence on how businesses operate and recover from their hardships. 

Over the last two years, commercial real estate has experienced a rebound in light of changing policies related to COVID-era work from home policy and a surge of consumer interest in brick-and-mortar experiences. 

While post-COVID recovery is still ongoing, there are certain industries that have not been able to bounce back from the vacancy loss that came with widespread business closures. 

Vacancy loss is the amount of rental income that a property owner loses due to their property’s unoccupied space. Generally speaking, a commercial investment’s success is closely related to the property’s occupancy. 

During the pandemic, Armada Hoffler’s asset management worked vigorously with tenants to provide any assistance necessary for their businesses. One immense way we were about to help them was by deferring rent collection. We attribute this strategy as being one of the greatest reasons our businesses were able to bounce back so quickly as government restrictions were lifted. To this day, we now have over 96% occupancy across our entire property portfolio.

While we were fortunate enough to mitigate the vacancy pitfalls that came with the pandemic, we recognize that there are many properties that still struggle with this issue today. The good news is there are strategies that can help recover from these vacancy losses. 

Here are some recovery strategies that can be used to prevent vacancy loss at commercial real estate properties:

Maintain open lines of communication

Prioritizing landlord-tenant relationships plays a key role when a tenant is deciding whether to renew their lease. How did their property manager treat them during the pandemic? Was there a willingness to work with them in difficult times? Touching base with your tenants regularly to address their concerns and proactively finding solutions may demonstrate to them that they are seen and heard.

Avoid jumping the gun with rent increases

While increases in rent are unavoidable due to market value and other expenses, raising the percentage too quickly could result in tenants’ inability to afford payments. If possible, avoid keeping a steady rental rate for the duration of a lease then heavily increasing the percentage when it is time to renew. Try to increase the percentage incrementally each year instead.

Offer tenant incentives

Offering incentives like parking benefits, discounts on rent or competitive lease terms are great ways to persuade a tenant to renew their lease or even to attract new tenants. A simple perk like an upgraded amenity to their leased space can be a distinguishable reason for them to renew and will increase your property value in the long run.

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