Challenging Time for Landlords

It can be really challenging to be a Landlord in these trying times.  Covid 19 has affected the real estate market in several ways.  Listed below are 5 challenges a Landlord faces in leasing office space.

  1. Increased Default – tenants cannot financially afford to pay their rent. Many are faced with the idea of closing their doors permanently. Also, many employees have switched to working from home and Office space is no longer needed.
  2. Vacancy Rate – the vacancy rate is going up – more tenants are leaving. For example, in Scottsdale 5 months ago the vacancy rate for office was 11.83% and today the vacancy rate for office is 13.3%. Data retrieved from Costar.
  3. Unemployment Rate:  The number of unemployment cases in Arizona has reached an all-time high in May 2020 at 13.4%.  Fortunately, according to the Bureau of Labor Statistics, there has been a drop to 8.9% in May, but even with the drop the percentage is twice the amount Pre-Covid.
  4. Finances – Landlords are hesitant and cautious when it comes to spending money and making improvements to their property due to the uncertainty of the virus.  The thought of a second wave with a second shut-down is another issue.
  5. Incentives: In order to get spaces leased up, Landlords are giving more incentives such as free rent and lower rent.  There is more room for negotiating rates. In the coming months, there may be a significant decrease in rates in order to get business booming again – especially in the Retail and Office markets.

Although, the market is changing due to the Covid virus, there is definite hope that things will turn around again. Companies are moving from various states and relocating to Arizona.

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The Lieberthal Team

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