During the course of your marriage, you and your spouse may have decided to purchase commercial real estate as a means of additional investments. If you’re considering divorce or in the process of a divorce, the commercial real estate investment you two have is considered marital property and would be considered a marital asset. So, if you and your spouse want to sell the property, you would look for an appraisal and an agent to sell the property. However, due to circumstances, such as the COVID pandemic in 2020, commercial real estate sales, in particular,  have hit a glut. 

The real estate market across the United States has definitely taken a hit due to the 2020 global pandemic. According to the National Association of Realtors’ April 2020 Report, the current conditions have led to a decline in commercial real estate sales in the first quarter of 2020. (www.nar.realtor.com).  With the shift and decline of business in the job market, there appears to be a decline in leasing and purchasing new office space.  There is a glut of vacant office spaces.   The hotel industry reported a vacancy rate of nearly 18% in April 2020. (www.nar.realtor.com). It is apparent that there is a glut of overvalued commercial real estate property in the market today.  

Depending on the area in the United States, office leasing activity has plunged or is on the brink of a complete collapse. Companies have dumped a large amount of unneeded office space on the sublease market. The tenant advisory firm Savills was blunt and states that the commercial real estate market is liable to be weak until late 2021 at the earliest.  In the downtown Chicago area, according to Savills Research, leasing volume plunged by 73.3% in Quarter 3 compared to a year ago, and overall availability soared to 18.6%, the highest since 2000, driven by sublease space that soared to over 5 million spaces. There is  also a glut of newly available commercial real estate for both direct and sublease options as the overall asking rates for rent have come to about $40.63 per square feet per year as compared to $46. The Chicago suburban market is positioned as a viable alternative for lower rents which will lead to a dense downtown market.  Downtown Chicago is already facing a glut of new supply at the start of 2020 from several high-profile deliveries throughout the year.

Some realtors are predicting a crash in the commercial property industry.  With the outlook on the economy and the increasing limitations on travel, office space expansion is not a reality for some companies.  In fact, there seems to be a growing trend in creating workspace within the employees’ homes. This eliminates the need to purchase new office spaces to accommodate staff. Tenant bankruptcies, if there are no protections in place, threaten a Landlord’s ability to recover.  

The increased rates and predictions due to COVID-19 have diminished the need for office space. There is uncertainty as to whether the vaccines will work and allow people to feel safe to return to the workplace.  As a result, companies could be looking to sublet or to enter into shorter lease agreement terms. 

What this means for divorce is, that those couples with commercial real estate investments have either lost value or it will be very difficult to sell or lease out those spaces.   This can have an overall impact on your divorce settlement and careful attention should be paid to these fluctuation values.    

Written by Jennifer S. Nolen

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