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Offices and Malls Will Look Different After Covid-19

This is the fifth and final column in a five-part Heard on the Street series on how the American economy might look once the Covid-19 pandemic is over.

The office and the shopping mall are two of the things most visibly changed by Covid-19. They also have the most potential to bounce back once a vaccine is distributed, but they could look quite different.

Early indicators suggest that many people want to continue going about their lives more remotely. About a quarter of office workers in a recent survey by Jones Lang LaSalle said they would like to work outside the office full-time post-pandemic. Meanwhile, Walmart Chief Executive Doug McMillon said this month the retailer was convinced that most of the behavioral shift to online shopping “will persist beyond the pandemic.”

Still, it would be overly simplistic to assume landlords are necessarily imperiled. Commercial real estate is a business that can take time to evolve because of long-term leases. A typical retail term is about six years while offices are closer to 10 years, according to CoStar Group . In addition, rent collection has stabilized for offices, with owners collecting more than 96% of the usual rent as of July, according to industry body Nareit, which tracks figures for listed real-estate investment trusts. Even for free-standing retail—think big-box stores—rent collection was about 95% in September.

The outlier is shopping centers, where rent collection has rebounded since the 49% nadir in May but was still only at about 82% in September. The closure of more than 11,100 retail stores has been announced in the U.S. this year through November, according to CoStar. Some empty department stores could have second lives as e-commerce distribution centers, though that may be an option for only the very worst-off malls since it can affect the tax treatment of a property.

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