Commercial Real Estate Must Evolve To Meet The Needs Of The New Normal

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Once the pandemic hit in 2019 and 2020, lockdowns and isolating became a common part for lives of people all over the world. As part of this enforced isolation, companies were forced to move their operations remote, to allow their employees to keep working even though they were stuck at home. The working population embraced this flexibility in working from anywhere, not just the office, as it made their lives easier by saving them money and time on traffic-congested commutes.

 

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In fact, Upwork’s Future Workforce Report 2021 reported that, fully remote workers will represent 27.7% of the workforce and 20.4% will be partially remote. This makes up close to 50% of workers engaged in some form of remote work, whether full time or hybrid. Additionally, Workmonitor from Randstad reported that 37% of workers (average age across 18 – 67 years old) wouldn’t accept a job offer if it didn’t provide flexibility.

Due to the ongoing trend of working from home, office properties in cities have taken a hit with occupancy rates remaining only half of what they were pre-pandemic. It is estimated that as much as 330 million square feet of US office space will become vacant and unused by 2030. Companies have begun pushing back on the work-from-home arrangements, requiring their employees to return to work at least 4 days a week or back to full-time. Only time will tell what happens to the “work from home” trend, but it is here and impacting commercial real estate properties due to higher vacancies.

Further, not just real estate properties are feeling the squeeze. New York City already lost $12 billion a year, with fewer office goers meaning less spending on recreational expenses, meals, shopping and entertainment spending had dropped, resulting in lower tax revenue.

We’d recommend that commercial real estate owners consider pivoting at least part of their property into alternative properties like residential or hospitality. This trend has already started, as reported in Financial Times, Dan Shannon, managing partner at MdeAS Architects said: “Right now, I bet you every major developer has a feasibility study on their desk on residential conversion. I would seriously doubt the Chrysler Building’s next life will be as an office building — at least not the top (section).”

 

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In some ways, this can be a way to find a silver lining in the cloud. It can help alleviate the lack of residential property in the city’s busiest districts, so with dropping commercial prices, multi-family residential properties in cities are increasing in value.

Another aspect that should be considered, as businesses try to limit the amount of space they lease per worker, is to selling workspace not just offices. Perhaps mixed developments including co-working spaces may also be a happy medium to consider. 

However, it must be noted that many properties are not suited for conversion, at least at a feasible price. Depending on city or state laws, residential properties may have requirements like operable windows and minimum amounts of natural light and ventilation in each habitable room. These may not be easy to retrofit in purpose-built office spaces. So interested commercial real estate owners should do their homework before pulling the trigger.

 

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One thing is for sure though, commercial real estate owners, especially in large cities, will have to live with the fact that the days of a worker spending 1.5+ hours commuting to their offices is essentially behind us. Now, new ways to attract business or residents to their previously commercial property may be all that keeps commercial property owners from defaulting on their mortgages.

With this uncertainty in the commercial market at the moment, savvy investors who spot great deals may be on the look out for real estate loans to capitalize on the opportunity. Well, in that case, REI News can help source the most affordable financing options from a wide selection of trusted, reliable lenders. Contact us now so our specialists can pair you with the perfect lender.

 

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