pexels-edward-jenner-4031818The COVID-19 Pandemic has affected many aspects of business, especially in the commercial real estate sector. With extended lockdowns, many companies transitioned to work from home in 2020, and employers tried to reduce day-to-day and in-person contact to limit the spread. This halted commercial rentals as companies chose not to renew their lease agreements, and struggling businesses shuttered their doors. 

Commercial real estate was impacted almost immediately by the pandemic. While lockdowns and restrictions continue to lift, many expect commercial real estate to rebound, but will there be lasting impacts from the pandemic on commercial real estate appraisal in particular? Today, we will walk you through a few aspects of appraisal that were impacted by the pandemic and give you some updates on how things are evolving.

How Vacancy Has Affected Commercial Real Estate Appraisal

The vacancy rate is the percentage of units in a commercial space that are unoccupied at a given time. A higher rate means there are fewer units that are occupied. Vacancy rates are important because they let property owners and appraisers know how a property performs or functions as an asset. A vacancy rate can be used as a tool to determine how a property is doing compared to a similar property.

In terms of vacancy rates and the pandemic, office spaces, in particular, were heavily impacted -  though while more workers return to working in-person, vacancy rates can be expected to decrease. It remains to be seen whether there will be lasting cultural shifts in terms of an increased tendency for companies to switch from brick and mortar to a work-from-home operation, which would be expected to impact office space vacancy most of all. 

So while the valuation of some commercial buildings, especially office buildings, has likely dropped in value (especially if you are using income capitalization to assess income-generating properties) there is a chance that these figures will rebound. With the back-to-work movement well underway, and options being explored for other uses, this is an area that is still developing. 

Access to Properties Has Improved

In the early days of the pandemic, a lack of access to properties seriously affected an appraiser’s ability to perform a site visit and essentially stopped any progress in producing a valuation report. An in-person site visit is a crucial component of the valuation process and is likely what comes to mind for most when they think of a property being appraised. 

Now that things are opening back up, most appraisers should be able to perform on-site visits as they did before the pandemic, albeit with a few safety measures in place, like social distancing. 

Lack of Maintenance in Empty Buildings Must Be Considered

While vacancy rates went up and commercial spaces emptied, some property owners and managers allowed their buildings to fall into disrepair. Now that spaces are being occupied again by workers, much-needed repairs might be impacted by supply chain shortages. Building and construction are some of the worst-affected industries when it comes to disruptions in the supply chain, and in some cases, owners will be forced to put off repairs for months. 

Any structural problems can alter the valuation of a property, and disrepair is something that commercial real estate appraisers must consider. Obsolescence or depreciation due to a lack of maintenance may make a commercial property less desirable and impact its overall valuation. 

Repurposing Units From One Zoning to Another

As mentioned above, when we discussed vacancies, some properties may find themselves being repurposed. For instance, some areas zoned for office spaces in Manhattan are being re-zoned as housing. Some are being transformed into apartment buildings in response to an increase in employees working from home, and others are being converted to senior living facilities to serve the needs of an aging population, such as senior living facilities. 

Whatever the transformation of the space, the properties' zoning will impact the valuation and appraisal. For instance, if an office building has been repurposed into an apartment complex in a largely commercial area, this would impact the valuation of the apartment complex. 

The pandemic’s impact on commercial real estate appraisal is still shifting and developing. Valcre assists commercial appraisers with cutting-edge technology to stay on top of the job’s technical and client-facing requirements. Discover Valcre’s mobile appraisal tool and let it help you track all that data.