How working from home could affect commercial real estate
LEXINGTON, Ky. – As residential real estate continues to strengthen, working from home and implementing hybrid schedules after the pandemic could seriously hurt the commercial real estate market.
What would you like to know
- Permanent and hybrid remote models raise concerns in the commercial market
- Number of people working from home hits record high
- House CEO says hiring employees is top priority
- Louisville real estate agent doesn’t anticipate a downtrend
Nearly 100,000 businesses in America have closed since the start of the pandemic, creating many vacant offices and storefronts. As people start to return to work, they are likely to visit an office less often. Kentucky Chamber of Commerce President and CEO Ashli Watts said about 100,000 people left the state’s workforce over the past year and that about 30% of jobs in Bluegrass State are currently remote, which is a “huge change” from even a year ago when pandemic restrictions began and were tighter.
“I think most of them will be permanent home-based jobs in the future,” Watts said. “In Kentucky, we’re a little different because we’re a manufacturing state, so there were lots and lots of jobs you couldn’t work from your kitchen table at home. I mean, if you make cars or make something in a factory, you can’t work from home.
Regus, a company that evaluates and provides professional workspaces, reports a decreasing number of companies are using the traditional office model and reducing the amount of rented space per worker. According to Regus research, 54% of employees worldwide now spend half the week working away from their company’s central offices. This research also shows that the most popular reason behind the growth of flexible working, chosen by 61% of respondents, was the desire for a better work-life balance after the pandemic.
“Many experts believe that the popularity of the traditional office has already passed its peak,” according to Regus. “Financial pressures are increasingly pushing companies to seek smaller, more flexible and less expensive offices. “
Regus research also shows that 61% of workers would actively change jobs to ensure flexible working, and 93% would choose one company offering remote work over another.
“Companies know they are going to have to be very creative, because there is the talent attraction where there are almost two jobs for every person looking for and therefore people are actively looking for a job, at the moment, that is. is a good time to be in the workforce, ”Watts said. “Part of that draw is a better work-life balance by working from home. I think you’ll find that companies will almost have to let people work from home, or they will lose a lot of the talent that they currently have.
Bill Menish is the owner, broker and managing director of SVN Menish Commercial Real Estate in Louisville. He said commercial real estate markets in major cities such as New York, Los Angeles and Chicago could suffer from working from home. However, he does not anticipate the same trend in Louisville or in cities of comparable size.
“I think there’s this attitude that we all thought everyone was going to work from home because we found out we could do it,” he said. “Now what I’m hearing is we’re not doing as much – there’s no team building and exposure to other people’s expertise, and there’s a push to go back to the office, at least that’s the feeling I have. get. But in Louisville, Kentucky, I don’t think people working from home hurt commercial real estate. I think we’re going to keep an eye on the big cities, and if there’s any prediction that the commercial real estate market is going to suffer because office space isn’t rented out in city centers, that’s where it’s going to go. produce. We’re going to see a bit of it here in Louisville, but it won’t be dramatic. “
The online job site Indeed now has a dedicated home-based jobs section, and there are more than 250 listings for this type of job in the Lexington area. As a sign of the new changes, publications are more than twice as likely to mention “remote” than announcements before the start of the epidemic, according to Forbes. The job board shows that in February 2021, nearly 7% of job postings were remotely, up from 2.9% in January 2020, and job seekers are now “twice as likely to search for jobs. remote jobs ”than before the pandemic.
Menish cited retail as one of the reasons he believes the commercial real estate market will not decline in Louisville or much overall. As recently as January this year, he said the prediction was that retail space would not survive the pandemic, but his company has since sold several linear mall-style properties.
“The last one we listed had so many offers on the first day of advertising that we decided to do what is called a ‘bidding’, where you choose a day and if you want you deliver your offer. that day, “he said. mentionned. “We had a significant number of offers and we got almost the asking price. Everyone was happy with the result. It’s not an office space, but it’s the same post-COVID impact or concern, and it’s not going as planned. “
In addition to remote jobs in the state, Watts said Kentucky also has an opportunity to capitalize on attracting people to work remotely for companies outside of the state.
“It’s kind of a good opportunity for people to be able to stay in Kentucky or move here, but maybe work for an out-of-state company,” she said. “We thought we could attract remote workers here because of our low cost of living, location, etc. “
Even as vaccinations progress, workers have been slow to return to an office, according to a article in The Economist. At the start of May, only 1 in 20 buildings in America had occupancy rates above 10%. With the return to work just beginning, with stimulus measures still in place and long leases not yet expiring, the extent of the overall financial losses for companies remains unknown.
“Office buildings have been affected by COVID-19,” according to the article. “A valuation-based price index calculated by Green Street, a research firm, is 9% lower than its pre-pandemic peak in America. The share prices of property investment funds which invest in offices remain 13% below their level at the start of 2020. Central banks are on the alert. The reliance on commercial property on debt financing means that a downturn could take a toll on the entire financial system. “
To justify owning or renting office space, many companies have adopted a model that allows employees to work from home and office.
“What we’re seeing is that a lot of employers are offering what we now call hybrid workplaces, where you would work two or three days in the office, two or three days at home, and sort of do that schedule. because it’s about attracting talent, ”Watts said. “Companies want to keep their workers right now – workforce issues are the top priority of every employer in Kentucky – so the hybrid model is what we see being the most popular because I think we all know we can work from home. What companies have realized over the past year is that the collaboration of just being together and being in a group has kind of been lost. I think the hybrid model is probably what will work best for many workplaces.
Insurance provider Humana, which is headquartered in downtown Louisville and two offices in Lexington, occupies numerous commercial buildings in Kentucky. If this company, for example, chose not to go back to the traditional office model, it would create a lot of vacant office space in Kentucky’s two big cities. Company spokeswoman Jahna Lindsey Jones said the company plans to have its offices fully operational after Labor Day and will be flexible with the needs of employees as they will have the opportunity to “step into the job.” workspace “at that time.
“Humana and others where people mainly had office jobs where most of your work was done on computers, even before the pandemic, are moving towards the hybrid model,” Watts said. The pandemic has obviously accelerated this. I think with buildings like this, and being downtown, it’s going to take a while to adjust and see where they’re going to land. I see that right now downtowns across the country, not just Kentucky, are going to be less populated because people will be working from home. “
Menish said that another reason he thinks the market will avoid decline is creativity. A developer he often works with has implemented a post-pandemic concept and is currently studying several projects.
“It’s a simple concept of several two-story buildings in an office park with somewhere between 1,500 and 2,000 square feet per floor and an elevator, but you only share the elevator with the people you are with. work because it’s who goes up in the elevator goes to the second floor, and the others go straight to the first floor, ”he said. “He’s doing this to try and fight post-pandemic fears. It’s an interesting plan, and the developers are thinking about how we’re going to get around these potential issues.
Working from home, post-pandemic fears and unrest are just some of the reasons Menish, according to Menish, might cause businesses to move or not to locate in the inner city of a city, but this does not necessarily mean that they do not use office space.
“We are quickly filling venues around Jefferson County and other counties, perhaps because of the lack of desire to be downtown,” he said. There is a great desire to get back to normal and restart businesses. Entrepreneurs have had a lot of money on the sidelines and are also entering the game with new opportunities. So we don’t see any negative impact so far here in Louisville. “