Sell for More News is a weekly blog series with interesting information from the world of commercial real estate.
All across our great nation, businesses that once functioned from physical office space had to quickly transform their processes to work remotely in response to government mandated stay-at-home orders. Businesses scrambled to piece together the technologies and systems that would allow them to remain functional, even when separated physically.
Typical boardroom meetings, workshops and training sessions turned into Zoom calls. Many businesses have now settled into this new normal of working virtually…but will anyone want to go back to a traditional office with the burdensome commute to and from?
A quick recap
Before the Great Virus Panic of 2020…43% of workers “occasionally” worked from home, 62% of workers said they could work remotely, and 80% of workers wanted to work from home at least “some of the time.” Working remotely during this pandemic will likely push those percentages up substantially as our world inches back to normalcy.
Many workers got their first taste of remote working…and they loved it
Were these workers equally as productive as they would have been had they worked from a controlled environment with fewer distractions…like a traditional office? Many employers will conclude that they probably were not.
Yet, we expect employers will consider permanent work from home arrangements in many cases. Why? Cost savings. Less office space will save money.
Also, I predict working remotely will be presented to potential employees as a part of their “benefit package” just like access to a medical insurance plan is. And better benefits will likely put downward pressure on wages. Meaning, you might not get paid as much as you once did…but now you get to work from home. It’s a trade-off.
Employers will also reduce expenses by reclassifying remote workers as independent contractors…which is an easier argument to make when these workers don’t work from the employer’s office space.
Also watch for the adoption of four-day work weeks, shorter workdays, and greater reliance on technology for current employees. Extensions of sick leave “banking” and “healthy-to-come-to-work” standards are likely to become commonplace.
But today, let’s focus on the weakened demand for office space that will likely result from the government shutting down our country to “slow down” a virus.
How will office landlords be affected?
It’s likely that many employers will consider how to achieve the cost-savings associated with reducing the overhead of physical office space…which will result in increased office space vacancies, shorter leases, reduction of space needs from renewing tenants and less money available for tenant improvements. Vacancies will rise before they slowly decline.
Would you rather start an expensive office renovation or let employees work from home?
Many businesses may be looking to reconfigure their space to better isolate employees, adhere to whatever new social distancing protocols come from this, or install sanitary features like air purifying systems. Commercial real estate construction companies and developers would be wise to shift their focus to this type of work.
As a business owner is this where your cash is best spent? I doubt it.
Other changes
The use of platforms like Zoom, Go To Meeting and Blue Jeans video conferencing technology will become more popular alternatives than traditional in-person meetings. Busy people won’t want to drive somewhere to meet with someone when a video call will do.
And gone are the days of traveling somewhere to sign a piece of paper. We use DocuSign for all our contracts.
Files of all sizes can be easily and inexpensively shared with software like DropBox.
Not to mention, automation and outsourcing will likely replace 20%-30% of employees who perform clerical, accounting, and administrative functions.
Hello recession
As soon as our government forced businesses to close and required that people hide in their homes…they ensured that this pandemic will push the U.S. into a recession. There’s no way around it, at least immediately. Overall GDP growth in 2020 is expected to decline 10%-13% which is the deepest recession on record. Some expect unemployment could rise to 10%-15% or higher.
The fundamentals of how Americans live, work, shop and play have changed and likely will not return to historical norms of behavior, consumption and lifestyles.
Hardest hit
One of the hardest hit areas of commercial real estate will be new construction. With government lock downs halting construction across the world, there will be much less new product hitting the market in the next few years.
Another hard hit sector will be companies that provide shared and collaborative office space, like WeWork. In fact, society as a whole is likely to question the open office, collaborative work space, and creative office floor plans. Many businesses and sole proprietors chose to cancel their memberships to such services during the pandemic and it will be exceptionally challenging to regain all that was lost once the stay-at-home orders are lifted. For those who have found that they can effectively work from their own home office spaces, they may continue to do so in an effort to lighten overhead costs. Others may have been hit so hard by the pandemic that there is not a business to which they can return, further reducing their need for office space.
A positive note
The one clear winner in the office sector will be healthcare and medical office buildings. This sector is expected to grow 10%-16% annually over the next decade as the entire local, county, state, and national healthcare facilities infrastructure and platform are reshaped, integrated and expanded as society mends and strengths as a result of a pandemic lock down like the world has never seen.
The year 2020 will surely be looked back on as a transformative year. Commercial real estate must look at this as an opportunity, just like every industry, to pause and pivot. We must learn to navigate this new landscape by remaining flexible, thoughtful, and strategic.
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About Beau Beach, MBA CCIM
Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.
Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and South Florida markets.
He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.
Beau can be reached at 800-721-3287, click to schedule a call or Beau@soldbybeachwood.com