The COVID-19 pandemic ushered in many changes in the way the workplace operates, as well as speeding up existing trends. Now, as the world exits the worst of the pandemic, the return to normal life is well underway. In some ways, however, it is going to be a new sort of normal.
One of the biggest alterations from pre-pandemic days is the hybrid workplace. The new reality of many companies operating in hybrid fashion will have an impact on commercial real estate development. Here’s what you need to know:
The New Reality of Hybrid Workplaces
The idea of a hybrid work environment did not spring fully realized from the COVID pandemic. Continuous technological advances, especially in computers, the internet, and communications began to transform the workplace before 2020.
It has become increasingly easier for many office workers to fulfill their responsibilities from home or a remote location. Faster, more reliable internet connections and the ubiquity of smart phones that can be used for both traditional calls and internet access make almost anywhere in the world a potential office space.
During the pandemic the trend toward remote work accelerated. Workers were unable to go to their workplace due to safety and health considerations. As more work got accomplished remotely, businesses began to realize the benefits of the situation. Remote work was completed as efficiently and effectively as work previously done in an office setting.
This provided evidence of a potential savings in expenses. Businesses did not need to rent or own large office spaces, a traditionally expensive proposition. The idea of a hybrid workspace, with employees in the physical office space only a couple of days a week while the rest of their work is done at home, became more attractive to many firms. This new situation will, of necessity, have ramifications for commercial real estate development. But what exactly will those implications be?
How the Hybrid Workplace Affects Real Estate Development
The rise of hybrid work does not mean the end of the physical workplace. It does mean that future workplaces will need to be structured very differently than in the past. Office spaces may not be as large as in the past, but they will exist. One thing the pandemic taught the world is that people need personal physical contact with one another to maintain good mental health.
The old “cubicles in a large open room” office setup is obsolete, and new configurations will be used going forward. While this means that many developers with available office space will need to make changes, it provides an opportunity for those able to get ahead of the curve in office design.
The idea of “team space” is becoming increasingly popular. The division of large rooms into smaller ones designed for the use of a team of employees working together is a way to entice new tenants. Making allowances for remote employees to join in via technology is also going to be a strong selling point.
Adapting to the needs of the modern office will also have some side benefits. Many firms will require less space. This trend would seem to be a negative, but it could become a net gain. Smaller office spaces means more offices available overall for new tenants. Where once only one firm might be leasing a space, now two or three businesses might take up residence. This provides a shield against the only tenant deciding not to renew a lease and leaving the entire area unprofitable.
Potential Benefits and Another Possible Problem
Still, if less office space is needed, then many landlords may find themselves without enough tenants. Vacancies reduce the value of the building and diminish resale opportunities. Office buildings that are older may not be able to meet the needs of businesses technologically.
Without costly renovations, many of these buildings cannot be effectively used as leased office space. In this case the owner will need to look at repurposing the building, possibly for housing. Problems may arise here, though, as modifying the existing office space to apartments could require structural changes to the building that may not be cost effective.
Another factor to consider is the rise in online retail during the pandemic. While online purchases were becoming more popular prior to the pandemic, the lockdowns and restrictions forced many brick-and-mortar stores to close or severely curtail their hours of operation. Online purchases increased and many retail stores closed their doors, leaving empty retail areas in buildings across the nation.
Restaurants were hit particularly hard. These businesses are not able to use the hybrid workplace model. In these cases, retail space is likely to be left vacant, causing concerns for building owners. Again, the possibility of conversion to housing space exists, but if this can cause the market for rental properties to suffer from too much supply. This could further adversely affect the value of these buildings.
The closing of many brick-and-mortar retail businesses and the shift in offices to a hybrid workplace are going to have serious effects on the commercial real estate market. The extent of those effects is currently unknown, so developers should proceed with caution when deciding what to do with their properties.