It’s understandable how residential real estate dominates the headlines and interest of most Canadians when it comes to the national real estate market, but for many property owners their investments in commercial real estate are just as much at the forefront. As it is in most countries, this is particularly true in major urban centres where – just like residential real estate – the risk / reward proposition is much higher than it would be elsewhere.
In much the same way that the fact people need a roof over their head is the eternal driving factor for residential real estate, needing a place to do business is the same for the commercial real estate market in Canada. Both of these facets of the market are hurting in the face of the ongoing COVID-19 pandemic, but the good news in regards to both is that many industry experts and economists are suggesting the pain may be much more temporary than many people think.
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But back to topic, and it’s yet another piece of good news in relation to the real estate market that the Federal Government is rolling out a rent relief program for people holding commercial real estate.
No Way Around It
The fact of the matter is that the coronavirus pandemic has hit the commercial sector especially hard. It’s been suggested that somewhere around 21% of Canadian commercial tenants requesting rent relief in April, and that forecasts to continue in the coming months as tenants that are prevented from doing business aren’t creating the revenue they need to make rent, much less profits.
This applies to all of the retail, industrial, and office sectors, and separate surveys are also finding that nearly half of these tenants are looking like they won’t be able to afford rent payments, many of which are payable today – June 1st.
Business analysts are stressing that the focus here needs to be on understanding and co-operation, as tenants and property owners openly communicate and maintain strong working relationships to keep businesses on both sides operating. No one is going to debate the fact that property owners should be doing all they can to enable tenants to remain open or reopen safely, and that’s especially true for tenants who’ve been ‘good’ ones for years or even decades and will be that once again once normal returns
The response to the Canada Emergency Commercial Rent Assistance (CECRA) program of a few months back now was as big as it was expected to be, but it hasn’t been without problems on both sides. One interesting thing to note was that small-business tenants were 2.7x more likely to request rent relief than regional, national, or international tenants, but that shouldn’t be a surprise and the reasons for that should be obvious.
It’s important to sustain local businesses, and that’s something that the real estate community all across the country is acutely aware of.
The CECRA program is being re-evaluated, and it’s expected that there are more commercial rent relief measures on the way.
Seeing that tenants whose businesses were completely shut down were 3.4x more likely to request rent relief than tenants who remained open is fairly predictable too, and a valid indication as to why this rent relief is so needed.
Landlords and tenants are facing pending rent deadlines with some uncertainty, as there are landlords who have indicated that they are still waiting for more program details before deciding to apply for CECRA.
However, with this we should consider another important point that was highlighted at CBC.ca today, where it was shared that owners who refused the CECRA relief funds will NOT be able to evict their tenants.
This is a judicious move by the Feds, as there certainly would be owners who’d see the opportunity to legitimize evicting business tenants and then leasing the space for higher monthly rates in the future.
What we should be eagerly looking to see is how the program will treat landlords who have agreed to revised rental payment terms for April or May with their tenants, when the loan funds will be available, and how this program will be rolled out for each province.
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