As we progress into summer we are getting a clearer picture ofthe impacts to the real estate markets surrounding theunprecedented events of COVID-19. I previously wrote that propertymanagers need to be prepared with re-entry plans as statesbegin loosening restrictions and prepare for the next normal. Butit's worth looking at what transpired over the past two months toensure that we can maximize the learnings from COVID-19 should wefind ourselves in a similar situation in the future.

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According to new data from JLL Property Management, swaths oftenants from varying sectors are actively looking for ways to manage their realestate expenditures. Data show that such requests peaked the weekof April 3 as the pandemic unfolded, and have tapered off throughthe beginning of May. The report looks at data from across the U.S.from the early stages of the COVID-19 pandemic through May 11,2020. The review covered a subset of JLL's office and non-officeproperty management portfolio including 620 properties and morethan 8,500 tenants. It's clear that while some sectors were hitharder, no one has been immune from the impacts of this incrediblyfast paced market shift. The volume of rent relief and abatementrequests show how state- mandated closures and stay-at-home ordershave put increased pressure on how companies across the spectrumview their real estate costs.

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Rent relief requests – a request for rent reduction in variousforms that were not abatement or deferment – and general inquiriesaccounted for about 28 percent of the activity. More importantly,the rapid shift in economic conditions has resulted in 34 percentof tenants asking for direct rent abatement, with another 28.5percent seeking a deferment from paying until conditionsnormalize.

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Retail accounted for 42.6 percent of rent relief requests, whileprofessional and businesses services accounted for the secondlargest volume at 10.4 percent.

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In the office sector, requests for relief from tenants ofTrophy/Class A properties accounted for more than 36 percent of theresponses. In contrast, Class B came in at 30.7 percent, with ClassC at 26.8 percent of the responses. This could be because stalwartsof Class A office space, including professional services and lawfirms, who typically spend heavily on space to recruit and retaintalent are facing headwinds in the market.

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Meanwhile, tech firms, early adopters of dense spaces and largeoccupiers of trophy space, have announced that some of theiremployees will begin to work from home permanently, reducing thedensity of their offices. However, as the country begins to reopen,we anticipate many businesses will also require more space thanthey did before to adhere to social distancing requirements.Overall, we expect the demand for space to stabilize as we movetowards the "next normal."

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That said, it's still unclear when many occupiers will return towork.

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JLL's recent report, Global findings on workplace re-entryduring COVID-19, which includes insights from more than 80organizations in 13 industries across the globe aboutwork-from-home sentiments and re-entry strategies, reveals thatwhile more organizations are planning their re-entry strategies inmid-May than in mid-April, more than 50 percent still don't have aset target re-entry date.

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As of mid-May, the JLL occupancy planning team has developedsocial distancing plans for approximately 149 million square feetof our clients' real estate portfolios. Among clients for whom wehave developed social distancing plans, 49 percent are reportingthat they are losing 50 percent capacity or more on theirfloors.

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So, what does this all mean? Landlords, and by extensionproperty managers, need to understand that no sector has beenimmune from the swift changes brought on by COVID-19. The "nextnormal" will include less dense offices and new needs and protocolsto keep tenants safe.

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Decreased workplace density would reverse a decade-old trend.Between 2018 and last year alone, average rentable square foot peremployee in North America fell 14.3%, from 228.2 to 195.6,according to JLL's annual Occupancy Benchmarking Report. Rentrelief also shows that there needs to be awareness of tenantdifficulties and a mechanism in place to collaborate directly withtenants as the economy remains on fragile footing.

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While our experience shows landlords are taking these rentrelief discussions very seriously, and are contemplating the futureof office density and the impacts on the workplace, now is the timeto have a direct and open line of communication with tenants tohelp soften potential changes in the future.

Mark Zettl is president, Property Management at JLL

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