The pandemic-hit economy has slowed down the once-thriving commercial real estate industry and compels real estate investors to rethink their strategies. Due to lengthy closure periods, a growing number of smaller retail businesses and restaurants are forced to desert their commercial spaces and many corporate chains choose to compromise financial losses by withholding rent payments.
But what seems like a temporary crisis mode might, in fact, be here to stay. The effects of the global pandemic accelerate the retail sector's transformation to increased online shopping as consumer habits may permanently change. As a result, a Moody's analysis estimates that 20 percent of mall stores could close within the next five years. Already today, brands like Macy's, Gap, Nordstrom, and Michael Kors proactively closed thousands of store locations and shifted their focus to online sales. According to the Moody's analysts, this overall trend "will hurt many weaker malls, which could, in turn, lead to their full closures or repurposing to alternative uses."
A similar development occurs in the market for office properties. As social distance requirements offset the need for office space, many employers consider the permanent implementation of work-from-home arrangements to cut costs. Property values may drop 20 to 35 percent, a Barclays report states. However, the long-term consequences for the future of office properties remain unclear. While many companies are going to rent significantly less permanent space for employees, others that do embrace the social benefits of an office culture are going to invest in more square footage to comply with hygiene measures.
This example indicates that it is not the time to lose hope in real estate investing. As the world learns to deal more effectively with the crisis and implements new medical solutions, the need for properties may bounce back sooner than expected. Recently, Chilean investors demonstrated confidence in the sector by acquiring the commercial real estate company VivoCorp, including assets like shopping centres, outlets, strip centres, service stations, and street stores across the whole country.
Francisco Miguel Irrazabal Aguirre, a managing partner at Cypher Advisory, calls this "a marvellous example of how entrepreneurs can take advantage of times of financial crises to purchase assets and make profits." Cypher Advisory is an investment advisory that provides tailored wealth management services to high-net-worth entrepreneurs. "Among other strategies, this is a type of investment we facilitated in recent months to make sure our clients take the opportunities that this crisis is providing. We continue to follow this approach with our clients every day, especially emphasizing a focus on emerging economies in Asia and Africa. We are proud to assist entrepreneurs who are not afraid to take those risks."
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Contact: Francisco Miguel Irrazabal Aguirre, Managing Partner at Cypher Advisory
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Release ID: 16520