As we approach the midway point of 2021, it is still a bit unclear as to how the pandemic will fully impact commercial real estate in the long run. Through the course of the early part of this year, downtown Boston occupancy rates have been reported in the 8%- 12% range. A recent report shows a significant increase in available sublease space right now. Many organizations will be dramatically decreasing their “in-office” footprint due to work-from-home capabilities. Obvious factors are contributing to this mindset such as company shutdowns, quarantines, and of course social distancing. Many organizations do not want to pay rent for empty office space, so some may adopt a more permanent work-from-home policy. For example, many larger organizations made recent announcements that they will only need half of their space as they go to a full remote or hybrid model.
That being said, there is still a “need” for an office to go to. Many who have been working from home since March 2020 are anxious to get back into their office setting even if only for 1, 2, or 3 days a week. The need for social interaction and face-to-face collaboration is a must for many so, with that, the demand for office space will continue to be there. What that office may look like though will differ from the past as the needs of employees have also evolved. An article in Forbes shares, “During pre-Covid days, companies were looking for physical spaces with gyms, lounge areas, and meeting rooms. There will be more of a demand now for buildings to have proper air quality, touchless technology, and more than appropriate distancing between cubicles. Tenants will be on the lookout for healthy and safe building environments along with property owners that care for their well-being.”
As “return to office” plans continue to take shape, there are still many questions and cause for concern from staff and we will just have to wait and see how that changes the real estate landscape in the city. Please see the following 5 trends to keep an eye on as we move into the 3rd quarter of 2021.
Post pandemic behavioral changes
The health of employees will be at the forefront. Commercial building codes will be adjusted to limit risks from future pandemics as it relates to standards for HVAC, square footage per person, along with the amount of enclosed space. If organizations are hopeful of attracting employees back into the office, they must show that they are going above and beyond in support of the health and safety of their staff. Also, given the recent challenges, people are wishing to retire early and more will continue to relocate.
Balancing work from home and returning to the office
70%- 80% of employees surveyed like the idea of working from home, and despite the at-home challenges, they feel productive. The reality is that 100% remote work limits collaboration, mentorship, and training opportunities. Over the coming months, companies will be laying out their “hybrid” model to bring employees back together in an office setting while still having some flexibility to WFH. The race is also on to find collaboration tools and technology to support these hybrid models.
Eye on the commercial leasing market
Leaders suggested that 2021 will be a challenging time for real estate owners. Net office demand will likely continue to decline and vacancy rates will rise. This is cause for concern with business leaders in light of the robust economic growth that is predicted. Moves toward flexible leasing arrangements will be popular and with the bulk of leasing being short-term renewals, given tenants are still nervous about making long-term commitments.
New markets for talent
Organizations now have the ability to look into untapped markets as organizations move toward hiring top candidates looking for remote-only opportunities. As the pandemic has drastically tightened up the labor pool, decision makers will have no choice but to open up their pipeline beyond the existing local market. Companies will need to drastically overhaul their recruiting strategies to reach a broader audience given the intense war for talent.
Retention of current tenants and employees
There has been a renewed and greater push for diversity, equity, and inclusion in the commercial real estate industry. Continued signs of meaningful change have and will continue to happen. Companies that have a strong focus on social causes, giving back to the community along with the health and well-being of their employees, will have a competitive advantage going forward. Communication with employees and colleagues is essential to keeping people calm, informed, and engaged.
The above trends and how they are managed will have an impact on the local, commercial real estate market. Commercial property owners and company executives will have to work hand-in-hand with the goal of getting employees back into an office setting.