By Andrea Deckert, originally published in Rochester Business Journal on November 13, 2020.

Commercial property experts say future of office space remains unclear

Those in the commercial property management sector say there is a likelihood that tenants will not renew leases, either because businesses are closing, or they have decided they do not need as much office space due to remote work.

On the flip side, however, they are seeing activity in certain commercial sectors and say now could be the time to renegotiate lease terms or for a startup to find space at a competitive rate.

Buckingham Properties LLC, says the future is uncertain at this point.

“What happens remains to be seen,” Finley says. “We are at the beginning of this and will take the challenges as they come.”

Buckingham has not seen a significant impact as a result of the pandemic, Finley says, noting the business is in good shape overall.

Finley wonders what level of permanency the work from home concept will have on businesses in the long run.

He has heard some frustration from office tenants if such policies remain in place because they felt face-to-face collaboration pre-pandemic was an important part of office culture.

Moving forward, office space design may be altered to comply with a new normal, Finley says, adding tenants may favor an open space concept for social distancing as opposed to walled offices.

He has seen a shift in what sectors are leasing space, noting activity when it comes to medical office and urgent care facilities.

Additional sectors are also holding steady.

“Service-related retail is not going away,” he says.

Finley says there are now opportunities for new businesses to find space at competitive rates.

“If you have a good space in a good location you should be able to fill it,” he says.

Andrew Gallina, president of Gallina Development Corp., agrees it is too early to tell what may happen in the market long-term.

While there has been a shift to work — and learn — from home, that may not be the case when a COVID-19 vaccine becomes widely available, he says.

Post-pandemic, some companies may choose to keep their workers at home if they are productive, while others may opt for having them return to an office that has been redesigned to allow for more space and fosters face-to-face collaboration.

Gallina believes such decisions are individualized, based on each company’s needs, noting the market cannot be painted with a broad stroke.

“There are different approaches, and each company has their own way of operating,” Gallina says.

While office space may see a drop in occupancy, other sectors of the commercial real estate industry, such as manufacturing and distribution, should continue to grow, Gallina says.

Among the factors driving that growth is the increased demand in online retail.

Gallina says the immediate focus for tenants should be on employee safety — adhering to state and federal regulations and guidelines when it comes to face coverings, cleaning spaces and social distancing.

He is leery about making major changes at this time that may be costly and not make sense in the long-term.

Gallina has been telling tenants not to overreact and to respond to their employees’ needs rather than the overall market.

“Take it day by day,” he advises.

Anthony Iacchetta

Anthony Iacchetta, partner at Phillips Lytle LLP who focuses his practice on the commercial real estate market, says not only is there a great deal of uncertainty when it comes to the long-term impact COVID-19 will have on commercial real estate, things also change on a regular basis.

“With COVID, things can change almost daily,” Iacchetta says, noting that another potential shutdown as cases shoot up, and flu season approaching, again looms large on small business owners’ minds.

Office space tenants have been reviewing their leases to see if they can get out of them or transition to smaller space as more employees work from home, he notes.

Iacchetta also sees an increase in medical office space moving into the market and says industrial space — which largely features an open design concept — has been in demand, as well.

“New tenants are looking for social distancing that is built right into the space,” he says.

Currently, landlords and tenants have been working together to deal with economic uncertainties, including renegotiated leases or provisions that may free up funds for a tenant while keeping space filled for a landlord, he says.

Keeping tenants in place can become a priority, as empty spaces can be hard to refill, especially during these times, Iacchetta notes.

The current climate may also bring a benefit to start-up businesses looking for space since landlords may be more willing to work with them on lease terms, he says.

The state has also gotten involved in the market, placing a ban on commercial evictions through year-end.

Gov. Andrew Cuomo said the executive order gives businesses additional time to get back on their feet and catch up on rent or their mortgage or to renegotiate their lease terms to avoid foreclosure.

It also means eviction cases will not be going to court during the ban, Iacchetta says, but notes litigation related to commercial evictions could sprout up in 2021.

“Next year might be interesting,” he says.

Wilmorite Management Group LLC, a commercial real estate and development company whose holdings include Eastview and Market Place malls, said in a statement provided to the Rochester Business Journal that the malls are making a strong comeback following the start of the pandemic.

The past two months, in particular, have gone well, and the business is successfully managing its financial position, the company wrote.

What helps is that fact that Wilmorite is a locally owned and operated business, which gives it the flexibility to work with stores on an individual basis.

Wilmorite reported it has received positive feedback from retailers based on the firm’s willingness to help the through these tough times.

“We are looking forward, not backward and we want our shoppers and store managers to know that the Wilmorite malls plan to be in the Rochester market for a very long time,” the statement said.