The Effects of Covid-19 on Commercial Real Estate – What You Need to Know
It goes without saying that the Covid-19 pandemic has had a massive impact on world health.
It’s had a massive impact on how we all live our lives, prompting many to wonder just how long these changes will last.
While hopefully, we’ll be out of the woods soon and back to our (relatively) everyday lives, there’s one set of changes that will most likely stick around for a good long while: the changes to the workspace.
Many employers have noticed that their employees are just as productive – or even more productive – working from home.
In the face of the seeming success of the WFH lifestyle, they’ve started asking perfectly reasonable questions like “Do I need to pay a lease for all this office space?” or “Does every employee need to be in the office at the same time?”
In short, employers have realized that they might be able to use their money more cost-effectively when renting out office space way and so significantly reduce overhead.
Naturally, this realization has caused a bit of a panic among commercial real estate investors, who worry that the days of clocking in for a 9-to-5 day at the office – and so, their primary source of income – are about to end.
Commercial Real Estate Will Change, But it Won’t End
If you’re a commercial real estate investor, I’m here to tell you to take a deep breath.
Commercial real estate is not going to go away because of Covid-19.
CBRE can back me up here: in a recent study involving 126 leading real estate executives, 41 % of these reported that offices’ importance would decrease only slightly, while 38 % felt they would be just as important and possibly more important.
Well, no matter what, it’s natural for people to want to meet up in person to discuss business – inability to meet up is part of why Covid-19 lockdowns have been so unbearable, after all.
One July study from Microsoft showed that more mental fatigue than usual resulted from working at home.
When it comes to office space, we can expect renters to do more to cut costs they’ve determined unnecessary.
In other words, commercial real estate investors should be prepared to make a shift in the kinds of properties they invest in.
To give you an idea of what kind of shifts you’ll want to make, let’s look at some commercial real estate trends we can expect post-Covid.
Post-Covid Real Estate Trends
Post-Covid, I feel that many companies will offer a “hybrid” work model whereby people can either work from home or work in the office or may only be required to come into the office a lot less frequently than they had to pre-Covid.
As tech giants like Facebook, Amazon, and Google adapt to ensure their employees feel safe, we already see this happening.
Furthermore, 55 % of employees say they want to work from home at least three days each week.
Another change we’ll probably see is installing barriers in office spaces – big walls between work stations. Taller work stations will result
from this as planners try to maximize the area while also including these barriers.
These changes ultimately mean that smaller office spaces will be in much higher demand for the commercial real estate investor.
One other trend we may see could be a sort of “Levittown effect” with business, where these companies move their offices away from cities and into suburbs where they can get smaller spaces at cheaper rates.
After all, the big cities are known for their big office spaces, and if a company doesn’t need big office spaces, there’s no need to be located in those big cities.
In the meantime, this will keep employees from having to use public transport – where they’re crowded in with a bunch of potentially ill people – from getting to work.
The Office of the Future
Let’s imagine an office space in 2024 because it’s this that you’ll want to visualize when investing in new properties.
First, it will be smaller than one in, say, 2019, with fewer workstations. However, these workstations will be more evenly spaced out, possibly with barriers between them, as “social distancing” culture takes more of a root.
While certain workers and bosses may be there every day, we can expect the average employee to come every 2-3 days. New employees may come in for hands-on training and experiencing the company culture – there will probably be one or two rooms dedicated to these purposes.
Proper ventilation will get more attention as air gets cycled out much more frequently. Doors may open automatically, as hygiene concerns from a few years ago stay with employees.
The office of 2024 will be a bit tighter, but not uncomfortably so as there are only ten people there instead of 30. The emphasis will be on building bonds, coordinating with those working from home, and getting things down in as productive a manner as they were four or five years prior.
All this, and the renter will pay less on maintaining this space and so increase company revenues. It’s a win for them and a win for their employees who hate coming into the office.
Will These Changes Be Permanent?
I think there’s a good chance they will be.
Ask yourself: when have businesses found a way to save money and not taken advantage of it? Only when there’s public pressure, but many people are just fine working at home and prefer it.
That’s not to say that large office spaces will suddenly become worthless – many creative ideas could work out.
However, they certainly will decrease in value vis-à-vis their original, workaday office intent.
Overall, only the passage of a few years will tell us for sure what’s going to happen, but trends – especially trends that make economic sense – don’t lie.
The way people work will be – along, perhaps, with the death of the movie theater – one of the most significant, lasting changes we see in the world once the immediate effects of Covid-19 have finally left us for good.
ABOUT ARTHUR NACHMAN
For more than two decades, Arthur has succeeded in establishing himself and bridging the client – commercial real estate Investment gap to achieve and generate significant cash flow while recommending secure investments and delivering an outstanding experience. He helps clients take the uncertainty out of the process and deal with issues to make their life simple and easy to understand.