As CRE data analysts, we have been observing huge shifts in commercial real estate that were occurring pre-pandemic. We’ve continued analyzing the commercial real estate data over the last year and a half to gauge how the COVID-19 pandemic is impacting the corporate real estate industry and tracking the trends along the way.
Now that the world is coming out of the pandemic and transitioning away from work restrictions and a passive workplace environment to a more active workplace environment, we felt it was time to sit down with some other industry experts to discuss their perspective on what the future looks like for corporate occupiers, CRE brokers, investors and the people that utilize corporate real estate spaces on a daily basis.
If you haven’t seen the first installment of our Back to Anywhere series, check it out to hear what major mindset shifts have already happened during the pandemic, and how it’s impacting corporate real estate moving forward.
Our post-pandemic CRE discussion continued with our panel of experts as we dove deeper into the changes in real estate statistics that have occurred over the last year. We specifically asked the experts with all the change that is occurring, what changes seem like they are temporary and which ones are more likely to be permanent. Here’s what they had to say.
Clearly, things aren’t going to be the same when we’re completely past social distancing and the pandemic. While there will be a period of adjustment as things settle into place, a few changes are already poised to be permanent.
RefineRE founder and CEO Ryan Turner has a unique perspective on how the pandemic has changed corporate real estate. RefineRE’s platform serves corporate occupiers with a total of 3+ million employees across 126 countries. That has allowed Ryan’s team to analyze a lot of commercial real estate data in terms of how spaces are being utilized.
One of the biggest conclusions that have come from the commercial real estate data analysis is that demand for traditional office space has decreased, and the flexibility factor of remote work is here to stay. Companies and corporate occupiers understand the pandemic shakeup has made flexible workspaces a top priority as people transition back to the workplace after more than a year out of the office. The average employee has been given more freedom to work in a way that works for them, and that can have huge benefits for businesses that know how to give employees the space they need.
Focusing on flexibility makes sense given that no one is 100% sure what course corporate real estate is on in wake of the pandemic. Flexible space is easier to adapt as needed in uncertain times, which is a unique benefit.
With this comes another permanent post-pandemic change – measuring and tracking flexibility factors. Some of the most useful metrics gauge the cost of flexibility, which isn’t easy to do. One of the few sticking points is that lenders aren’t quite sure how to value flex space income streams just yet. Commercial real estate software tools like RefineRE’s FLEX module that estimate cost savings of commercial flex spaces and may have never been used before will become invaluable for corporate occupiers. CRE brokers and portfolio managers can expect these metrics to become part of regular analysis as more investors and occupiers make flexibility a priority for a commercial investment.
Some analysts are predicting that flexible workspaces will be in high demand in the coming months and years. It’s a part of the market that could get quite crowded and competitive, so buyers that were eyeing these types of space pre-pandemic need to brace for that.
Let’s be perfectly honest. Roughly 99% of people don’t like a long commute to work. From the top-down, commuting to work has historically been seen as a costly necessity of doing business. But since the pandemic forced many people to become remote workers, long commutes to work are something that’s going to change permanently.
Ben Wright, Founder and Head of Flexible Office Solutions at Squarefoot, shared a few interesting real estate statistics during the panel discussion. Based on their data, commute times are going to drop dramatically compared to pre-pandemic commuting. Why? Because everyone sees the benefit in spending less time driving to and from their job.
A recent study from Harvard Business School supports reduced commute time post-pandemic. There is absolutely no employee benefit to having long commute times, as it affects health and morale, it can also kill worker productivity and hurt innovation. Worse still is that a company’s top performers are affected the most.
Even though commute times should get shorter for almost every worker, that doesn’t mean offices will be black holes devoid of employees that are now doing remote work. Certain parts of the job are still going to be conducted in-person, in the office. An employer that understands what type of suitable work is mostly going to be done in-office moving forward will be in the best position to make the necessary adjustments and investments to create a suitable work program that will appeal post-pandemic.
This major shift towards less commuting has been simmering on the backburner for a while. Dozens of studies have been done to gauge how commuting affects people, both from a personal and productivity standpoint – and none of it is good. Now that businesses have seen firsthand that flexible schedules can work, that 9-to-5 rush hours could become a thing of the past.
During any kind of transition period, there are going to be short-term solutions and temporary changes that only apply in the interim. These are the band-aids that get us by while we’re settling into the new norm and figuring out what the post-pandemic work plan and corporate real estate industry will look like.
The current cost of making a space more flexible probably won’t be the same down the road. As Ryan pointed out during the discussion, corporate occupiers need to know more than the cost of flexibility. They also need to know if that cost is sustainable for the foreseeable future.
“There’s a metric that everyone is trying to get to whether they say it or not. What they are trying to understand from their ELT, from leadership is, what is the price of flexibility? What is our cost of flexibility, and can we make that sustainable for the future?” Ryan Turner, CEO, and Founder of RefineRE.
Ryan and his team did some number crunching. During the discussion, he revealed that across more than 18,000 commercial leases that were analyzed, the average remaining time on leases at the start of the pandemic was 4.5 years. That means CRE owners, investors, and portfolio managers are going to have to keep a close eye on how flexibility costs trend so they’re prepared when it comes time to renew leases.
This also means there is likely to be a lot of retrofitting and remodeling in the coming years to make workspaces more flexible. It’s an upfront investment that should be temporary as new spaces are built with flexibility in mind.
There’s a lot of change happening right now as businesses navigate the return to work and what that will look like moving forward for their workforce. Corporate occupiers and CRE owners are having to figure out how to incorporate flexible space in a cost-effective way, but the majority of the angst should subside.
We’re entering the growing pains period. It will take some time to get our bearings and for the pandemic dust to settle. Everyone in the CRE industry is going to feel the heightened stress from the uncertainty. The best thing you can do is arm yourself with as much information as possible so that you are making data-driven decisions.
These are uncertain times in commercial real estate, but that also means there’s opportunity for improvement. Major players that excelled pre-pandemic may find that their strategies and models are no longer feasible in a post-pandemic world and they have to pivot.
While many corporate occupiers, corporations and investors are still figuring out their next move, there are a few things that are certain. hybrid work is now on everyone’s radar, and no one is interested in going back to long commutes every day. These are significant changes that are going to shape commercial real estate for the foreseeable future as we get through the short-term transition stage.
The Back to Anywhere panel discussion took place in September 2021 with four CRE industry experts working in different verticals across the country. The hour-long conversation explored many of the biggest concerns and questions of corporate occupiers who are preparing themselves for post-pandemic workplaces.
Ben Wright @ SquareFoot
Founder, Head of Flexible Office Solutions
Ryan Turner @ RefineRE
Founder and CEO of RefineRE
Shannon McLendon @Motley Fool
Director of Office Services & Real Estate
Eric Nelson @ LiveRamp
Head of Global Workplace Experience