Experts agree commercial real estate will be a far different market post-pandemic. What will it look like?
Joe Bealmear, a shareholder at the Polsinelli law firm who advises on the acquisition, financing, development, leasing and disposition of office space, outlined seven trends to watch.
1. “Hoteling” of office space by one tenant: Some companies have announced plans to stagger the use of space by their employees, with employees alternating days in the office. “It remains to be seen whether these are temporary arrangements or permanent arrangements and how well employees, who may be used to controlling and decorating their own workspaces, will feel about this arrangement,” Bealmear said.
2. Space-sharing by multiple tenants: Even pre-pandemic it was not unusual for medical providers such as dentists and optometrists to enter into space-sharing arrangements, with one medical provider using the office on certain days or hours, and another provider using that same office at other hours or days. The arrangement allows them to share expensive medical equipment and work out of multiple offices across a metropolitan area to better reach their patients. “There is some question as to whether, post-pandemic, this concept will spread to non-medical office space. That said, most commercial office leases would prohibit this arrangement without the landlord’s prior consent,” Bealmear said.
3. Rethinking of open-concept office design and amenities:The trend before Covid was toward workplaces that allowed for more social interaction and collaboration, with an emphasis on larger community areas and more amenities such as coffee bars, ping pong tables, putting greens and more. The conventional wisdom was that these sorts of amenities were necessary in order to attract, engage and retain younger employees. Covid health concerns interrupted the trend. “Will the fear of having to shut down expensive community areas convince companies not to install them? Or, once we are fully in a ‘post-Covid’ world, will the pent-up demand from people looking for social engagement carry over into the office space and spark a renewed arm’s race for these amenities?” Bealmear said.
4. Effect on overall demand for office space and associated retail: “There has been much discussion about companies shifting to a permanent work-from-home model for a substantial part of the workforce, and how that model might then affect both office buildings and the retail occupants that rely upon the presence of those office workers,” he said.
5. Effect of long-term, work-from-home arrangements on employees. There are several drawbacks to the work-from-home model that may result in employees not wanting to adopt it long term. “It may be harder to get training and mentorship from more experienced employees,” Bealmear said. “The employees that are in the office more often may be more likely to get favorable assignments, simply by virtue of being present. One risk that I do not see discussed as much is the risk that, if you prove that your job really can be done long-term from anywhere, what is to stop your employer from deciding to outsource that job to India?”
6. The long-term effects of a disconnected workplace for employers: “With the lack of social interaction in the workplace, employees are less likely to develop deeper friendships at work that keep them sticky to a particular employer,” he said. “That could result in higher turnover costs for employers. It likely also leads to less collaboration,” which could put employers at a competitive disadvantage.
7. Tenant solvency as stimulus winds down: “While the stimulus provided a necessary lifeline for many otherwise successful businesses, there are also some businesses being kept solvent by the stimulus efforts that will not succeed once the stimulus has run its full course,” Bealmear said.