The COVID-19 outbreak is a public health and economic crisis for the United States and the entire world. With the increased prevalence of vaccines and the slow fade of Delta variant cases in California, the post COVID-19 commercial real estate market is beginning to come into view. 

Businesses, start-up companies, real estate investors, and commercial property owners need to be ready for changing conditions. Our commercial real estate lawyer in Santa Monica provides an overview of the local commercial real estate market in the Fall of 2021 below. 

The COVID-19 Pandemic Disrupted Commercial Real Estate in Southern California

In March of 2020, the American economy ground to a halt with the onset of the coronavirus pandemic. For reference, travel in many sections of the country decreased by nearly 90% in the initial days of the COVID-19 outbreak. Despite federal economic efforts, including the The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), many businesses struggled through the pandemic. For reference, the Wall Street Journal 200,000 pandemic-related business closures nationwide.

Of course, no community was unaffected by the virus. From the Spring of 2020 through the Fall of 2021, California has consistently put in place some of the most strict state and local public health restrictions in the entire country. In the early stage of the COVID-19 outbreak, there was a sharp drop in demand for commercial real estate in Los Angeles County. A lot of  businesses and commercial real estate owners in Santa Monica sustained significant financial losses as a direct consequence of the COVID-19 pandemic. 

A Stronger, Faster Rebound in Commercial Real Estate than Expected

Given the initial impact of the COVID-19 pandemic—including the continued spread of the virus, personal safety concerns, long-lasting public health restrictions, and a trend favoring employee work-from-home—many industry experts expected a sustained, severe adverse effect on the commercial real estate market. However, the reality has been quite a bit different. The recovery in the commercial real estate market in the United States has been far faster and far stronger than most people expected. Southern California is no expectation to the rule. 

According to a report from dot.LA, an independent local publication that focuses on startup/tech news in Los Angeles, many tenants are dealing with “sticker shock” when searching for commercial space for post-COVID business operations. Even with business closures, a jump in vacancy rates, a significant percentage of the workforce still working from home, the commercial real estate rates in Los Angeles County are higher than they were before the pandemic. Here is a snapshot of the market of the local real estate commercial real estate market from March of this year: 

  • A 22% commercial property vacancy rate in Los Angeles County; and

  • A 5% increase in the price per square foot of office space in Los Angeles County from the end of 2019 to the end of 2020. 

One real estate industry professional cited in the report described the effect of COVID-19 on the real estate market for commercial property as “counterintuitive.” As so many commercial property owners and commercial real estate investors expected a strong rebound as the virus is expected to fade, rental prices for commercial real estate did not fall to address a rise in vacancies. What will happen going forward remains an open question. 

Commercial Real Estate Has Held Up More in Los Angeles 

The impact of the COVID-19 pandemic has varied from market-to-market. Notably, the commercial real estate prices in Los Angeles County are somewhat stronger than those nationwide. There are many different reasons for this, including the fact that major tech companies such as Netflix and Google are aggressively expanding their footprint in Southern California. 

Of course, with the greater commercial real estate market, there are many “micro” real estate markets. Even within the same city or county, some areas of commercial real estate are seeing drops in their prices whereas other areas of commercial real estate remain highly desired through the pandemic. 

Commercial Tenants and Landlords Should Pay Attention to Any State/Local Regulations

Although there is strong reason to believe that the COVID-19 virus—and the related government restrictions—may be fading away, the pandemic is not over yet. Quite the contrary, the major impact of the Delta variant across the United States starting in July of 2021 shows that people and businesses need to be prepared for the unexpected. State and local regulations remain in place: 

  • Mask Mandates: For example, as of September of 2021, California still has a statewide indoor mask mandate for unvaccinated employees. Many municipalities, including Los Angeles County, have an indoor mask mandate regardless of vaccination status. Startups, other businesses, and commercial property owners must continue to comply with these public regulations.

  • Eviction Moratorium: There may be property-related restrictions in place, including  eviction moratoriums. As explained by the City of Santa Monica, “Santa Monica’s eviction moratorium for commercial tenants protects eligible commercial tenants from eviction until September 30, 2021 if certain conditions are met.” These regulations have been extended before and could potentially be extended again or reimposed. 

Even as conditions improve, the COVID-19 pandemic remains a part of life in California and around the world. It is imperative that commercial tenants and commercial landlords understand their rights and responsibilities. An experienced Santa Monica, CA commercial real estate lawyer can help you navigate any specific situations. 

Contact a Smart Santa Monica Commercial Real Estate Lawyer

At KLEIN.LAW, our Santa Monica commercial real estate attorney brings professional skills, real world experience, and personal dedication to every case. We are committed to helping start up businesses and other companies find the best solutions. If you have any questions about post-COVID commercial real estate, we are more than happy to help. 

Call us at (310) 295-2261 or send us a message directly online to arrange your free, strictly confidential initial consultation. From our Santa Monica law office, we provide commercial real estate representation throughout Southern California, including in Los Angeles, Long Beach, Thousands Oaks, Beverly Hills, Burbank, Inglewood, Torrance, Glendale, and Pasadena.