What’s the future of commercial real estate after Covid?

What’s the future of commercial real estate after Covid?

Is the office disappearing thanks to COVID-19? There’s a growing body of opinion backed by evidence that, far from eliminating the demand for office space, the coronavirus pandemic will accelerate some existing trends and change the way companies use office space.

But reports of its demise, to paraphrase Mark Twain, appear to have been greatly exaggerated. Brokers should rest assured that there’s still plenty of work in the CRE industry – it is important to understand the changed needs of your clients today.

Demand will hold up

In the early days of the pandemic, a general supposition was often made that more working from home would mean a dramatic fall in demand for corporate offices. But recent research by CBRE among 126 senior level global real estate executives found that 41% said the importance of the physical office will decrease only slightly, while 38% said it will remain as important, if not more so. 

Alternative asset manager Brookfield says its office buildings in Seoul, South Korea, are already at 90% of pre-COVID occupancy and comments more generally: “Demand for high-quality office space may even increase in the long term as the psychological effect of the pandemic pulls back on the long-lived trend of office densification.”

Going hybrid

It won’t be a question of working in the office or from home in future, experts say. As Savills puts it: “We expect to see a shift towards diverse location strategies and the emergence of a hybrid model – a combination of home working, local office hubs and a head office.” 

People have learned the benefits of working from home, such as not having to commute, but many – especially at the younger end of the scale – still crave the social interaction that offices bring, while companies recognise that being in the same physical place can be vital to achieving collaboration and to building their organisation’s cultural identity. 

Overall, the proportion of companies allowing employees to choose when and where they work will jump from 42% pre-COVID to 61% post-COVID, according to real estate services company CBRE.

Companies need to flex

In the wake of the pandemic, commercial tenants will appreciate the flexibility offered by serviced office providers, says insurance broker Lockton International: “While ‘space as a service’ was a high growth area in real estate prior to the pandemic, the benefits of reducing or increasing office space as needed while not having to deal with furniture supplies are likely to be appreciated by commercial tenants even more in the wake of COVID-19.” Some 33% of companies surveyed expect to make more use of flexible space, such as serviced office, suites and coworking, according to CBRE.

A move to the suburbs

Workers will be less inclined to use public transport as a result of the pandemic and that will have an impact on city centres. Micromobility – the use of transport options such as e-scooters, bikes, car shares and e-bikes – will reduce the concentration of office space near public transport hubs, according to Lockton International. 

And Richard Shepherd-Cross, fund manager of the £323m Custodian REIT, predicts that “nice places to live” such as Oxford, Bristol, Cambridge, Bath and Norwich will provide opportunities for office development in the new era while ‘grittier’ areas fare less well, as companies discover a new-found confidence to re-locate where they and their employees would like to be. 

Central business districts will likely find more favour with Millennials and Gen Zers, while suburban locations are preferred by Gen Xers, says CBRE. 

Avoiding the crowds

A reverse in the long-running trend of densification in offices is anticipated, primarily as a result of social distancing, but also of the desire of many workers to spend less time in the office and more working from home. 

Savills says 63% of those it surveyed expect occupier density in offices to decrease and adds: “This could see occupiers taking the same amount, or potentially more, office space as before the pandemic, but using it differently.” 

Property services provider JLL forecasts: “Once a vaccine or effective treatment is available, there is likely to be a movement back toward the densities recorded pre COVID-19, but not all the way, as health and wellbeing will remain top of mind for occupiers.” Cushman & Wakefield research, meanwhile, forecasts that office space per employee will rise from a historic low of 150sq ft in 2020, to 200sq ft by 2025.

A focus on wellness and hygiene

Workers will expect office buildings to be cleaned more thoroughly in future, but the focus on employee wellbeing will also extend to the design and construction of the building. Contactless design in buildings, for example in appliances, lifts and doors, is expected to increase, according to Savills. 

There will also be a growing focus on ventilation, with buildings expected to replace their air more frequently. And there is likely to be a renewed interest in standards such as LEED and WELL, which are focused on creating sustainable spaces and delivering occupant comfort, health and wellbeing.

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