How the commercial real estate industry will keep evolving post-pandemic

Author Ivan Smiljanic Read bio
Tags: commercial real estate industry pandemic
Date: October 16, 2020

The pandemic drove many office workers home. Those who were lucky were able to continue their work remotely. Others got laid off. Since March, the economy has gradually reopened and the streets seem to be slightly busier in the past few months. But, there has been an unenthusiastic response from companies and employees at the prospect of making daily appearances at the offices any time soon.

Unlike any other economic challenge we have faced in the past, coronavirus is having an immediate, widespread impact on the commercial real estate industry all across the world. Let’s discuss why this is different and give you our take on what the commercial real estate industry will evolve post-pandemic.

Remote work is here to stay

We’ve talked about remote work a lot lately. Since the time and effectiveness of the vaccine remains unknown, and productivity levels have been maintained or in most cases increased since the lockdown started, many companies across the globe chose to delay the return of the employees to offices. Many big corporations have postponed going back to physical premises as far as next year, or even 2022. Some even claim that they aren’t sure if some employees will ever choose to go back to offices. 

The most common question that is being asked in the commercial real estate world is will this colossal shift be a temporary situation that arose from necessity or will it be a permanent acceleration of a trend that was already in motion.

Rental rates will most likely fall soon

Future space requirements are still undefined as businesses continue to evaluate the pros and cons of keeping most of their employees working from home. Even though they are under real pressure, rental rates have somehow remained relatively flat. However, in the short term they are expected to fall, especially downtown ones, due to demand being significantly weaker and the fact that supply has increased from companies subletting the surplus space to offset the potential costs. 

Opinions on the long term effects are split. Some believe that companies will need the same or less space due to their employees working from home. Some, on the other hand, feel like companies will require the same or more space as they bring employees back to the offices and implement social distancing practicing. 

The Golden Gate bridge

Leasing transaction went down

One thing we know for sure is that the pandemic and the economic slowdown have had (and will continue to have) a significant impact on the commercial real estate market. The effect of it can be seen in the fact that due to the coronavirus lockdown the reduction of leasing transactions in the first half of 2020 has dropped by 50%, compared to the previous year. What that percentage will be like in the second half can only be speculated, but it doesn’t seem like things are looking up.

Relying heavily on the technology

During the past months, many employees all over the world started using virtual meeting and collaboration softwares like Zoom. The longer employees work from home, the more they rely heavily on technologies. We can say with confidence that more and more tools and technologies will be incorporated into work days of remote workers. 

As companies evolve and adapt in the attempt to try to keep things running smoothly and employees engaged from their homes, it’s becoming unlikely things will return to the state they once were, even when we come out of the whole coronavirus situation.

Tough decisions need to be made

While the pandemic continues, many companies across the world are remaining patient and waiting to see how the situation unfolds, to determine whether to have employees come back to the offices. Those who are facing lease renewals anytime soon have to make tough decisions, that are not only based on their predictions on how long their employees will work in the future but their faith in the government’s ability to control the pandemic as well. 

Those who are considering making work-from-home arrangements permanent now have the technology and the experience to support that decision and increase their chances of success.