As vaccinations ramp up and Covid-19 transmissions decline, the journey toward normalcy seems just about over. Because of that, I believe commercial real estate generally and office space specifically remain sound investments. However, the pandemic has forever changed the way corporations and workers use these assets and, as a result, how investors should think about putting their capital behind them.
The ever-changing new normal has altered the core questions around commercial real estate. Here are four things for would-be investors to think about before making any moves in this sector of the market.
Flexibility And The End Of The Open Office
A recent study found that more than 65% of surveyed workers want more in-person time with their teams. Management largely feels the same way, with business leaders across multiple industries saying in recent weeks that there is no substitute for spending time together in the same physical space when brainstorming ideas and building morale.
Nevertheless, the respondents to the survey also said they want flexibility over their schedules, craving the freedom sometimes to work remotely. Combined with health and safety considerations that are likely to outlive the pandemic, this desire could significantly change not only how people work but where.
Therefore, the challenge will be to create spaces that can support 100% attendance one day, maybe 10% the next and perhaps 75% the day after that — all while complying with health and safety protocols. Companies that appreciate this dynamic will prove to be the best positioned to thrive going forward.
Tech-Driven Real Estate
Many companies may consider a 50/50 schedule to address capacity and health risks: half the team working remotely, half of the time. This means meeting rooms must evolve. They may need better lighting and cameras, improved recording and audio equipment, and smart whiteboards, among other hardware improvements.
Location will indeed remain important (below). But I expect companies will prioritize, like never before, how well their office space can enable those in the office to interact with peers who are not. The concept of flexibility is one thing. Being able to pull it off effectively is another.
Location, Location, Location
The golden rule of real estate will hold true. What may change, however, is which locations are attractive.
Early in the pandemic, some professionals fled urban centers in favor of suburbs or smaller cities. That flight has pushed down prices in some of the most expensive cities in the country, with notoriously pricey San Francisco seeing a 3.2% decline in residential home prices and a 12% drop in office space prices.
Could these trends reverse themselves throughout the rest of the year? Sure. Still, the use of office alternatives, such as startup Daybase, that leverage underutilized retail space in suburban areas may present an opportunity for corporations looking to meet their teams closer to where they are today.
The Only Thing That Endures Is Change
One constant over the pandemic has been the nearly daily shift in health regulation. As people learned more about the virus and how it spread, they stopped disinfecting their groceries and focused on covering their faces.
Continued research and development of testing, vaccinations and other safety measures will further change people’s perspectives, and people may have to shift their focus again.
Companies that haven’t already done so will likely start going back to the office soon, and while no one knows what the future holds, the investment and business communities know for sure that the rules of the commercial real estate game changed since early 2020. But if you can account for these changes, I believe commercial real estate remains a viable investment class.
Source – Forbes.com