At Prime Executive Offices, we’ve had a first-hand view of the myriad ways this once-in-a-century pandemic has been reshaping the commercial real estate industry. Like every other American business, our Carlsbad-based executive office rental business is changing and adapting to the new normal and what we see is nothing short of a tectonic shift in the traditional workplace.
The New Norm
This new normal includes remote workers attending Zoom meetings from their kitchen table with dogs and kids frolicking in the background. Co-working spaces, all the rage only a few months ago, have been largely abandoned out of concern for health safety. Although some workers have returned to their traditional offices, that transition has been slow and tentative, again out of concern for health safety. While some of these trends may be fleeting, others are likely here to stay.
The executive office sector in which we operate caters to typically white-collar professionals and small business owners. This sector provides short- or mid-term leases for reasonably priced, all-inclusive private offices, as well as virtual offices. Our plug-n-play offices include furniture, reception services, phones, printers, and high-speed Internet, as well as kitchens, meeting rooms and outdoor patios.
We believe this type of flexible office space is advantageous for these times. Though there has been a dramatic increase in the number of people working from home, many of these workers are detached from their workday routines and report feeling isolated and alone. While workplace technology like Zoom can help connect colleagues and customers, they are a poor substitute for the in-person social connection that people crave. According to a recent poll published by the architectural firm Gensler, only 12% of the people currently working from home have stated that they would like to continue doing that permanently. Another survey conducted by Kane Willmott of iQ Offices, a Toronto-based co-working company, showed that of its users an overwhelming majority – 93% — don’t want to work from home full-time. Most workers, it turns out, like the supportive camaraderie and community that traditional workplaces provide and we are indeed seeing that in the executive office space.
The Future of Workspace Solutions
After enduring months of quarantine and shelter-in-place orders, many workers have gotten tired of staring at their own four walls 24/7. They have found that a small private office within an executive suite facility is safe and clean. It can provide a professional office setting away from home, while also serving as an intermediate step back to the workplace without the perceived danger of going back to an office tower and working on a floor with 50 or 100 other co-workers.
We are also an ideal solution for working couples who find their homes unsuited to the needs of two working professionals. Perhaps they have a home office, but it’s only set up for one person, or they live in a condo where two simultaneous Zoom calls can cause cross-talk and confusion. In that case, a small office for rent can be shared by the couple where the spouses take turns either working from home or working from the office. Maybe one spouse comes to the office three days a week, while the other works from home, and vice versa. This offsite shared office approach is growing in popularity as we work our way through the pandemic.
Revolutionizing Commercial Space
As for the traditional commercial leased office space sector, we see big changes ahead. According to a McKinsey & Co. study, the number of people working from home since the start of the pandemic, has jumped from 25% to 62% in the U.S. McKinsey predicts that this will have profound and lasting effects on the corporate workplace.
Commercial offices will transition from traditional 9-to-5 operations and morph into more of a hybrid model. Employees will embrace the convenience and benefits of working from home and weave it into showing up at the office on a rotating or part-time basis. Under this model, employees will come to the office for a change of pace, for important meetings or for team-building exercises that can’t be done remotely. Flexibility will be the hallmark of this hybrid model. Owners and operators of commercial real estate must begin preparing now for this eventuality.
When it comes to co-working, this trendy, new model has been broadsided by the pandemic. Workers have fled co-working spaces in droves due to the open, crowded nature of these types of offices and the health safety issues they present. Yet, private mailboxes for rent and P.O. Boxes for businesses are a part of co-working that is still being sought out for. We think these types of offices certainly have a future and will come back strong but that day won’t arrive until the pandemic subsides and workers once again feel confident in their health safety.
The Shift in Residential Real Estate
Another trend being rapidly escalated by this pandemic is the move from high-cost urban cores like San Francisco, New York and Seattle to either secondary cities like Boise, Reno and Birmingham or even farther-flung, lower-cost suburban and rural areas. Sheltering-in-place has proven that remote work can be highly productive and that high rents, long commutes and excessive hours in the office are no longer essential criteria for successful careers, especially in technology-centric industries. We see a whole cadre of workers moving to low-cost regions where they can buy larger, more-comfortable and more-affordable houses. This new class of workers will be tethered to the mothership by better and more advanced communications platforms and perhaps only be required to visit the office once or twice a month. Already, there are reports that apartment rents in high-density regions like San Francisco and Los Angeles have been dropping by as much as 25% since May.
The emergence of multi-use, fit-for-purpose space will be yet another accelerated outgrowth from this pandemic. While large tech companies will continue giving their employees the option to work from home, these workers will nonetheless continue to embrace the flexible work model. Additionally, torrid growth among tech giants such as Facebook, Apple, Amazon and Google will continue to drive the development of mega-spaces like the lease Facebook just signed for some 730,000 sq. ft. in Midtown Manhattan. But the tech sector is the exception, not the rule. The consulting arm of Deloitte says in its research that demand for work space is dropping fast in a number of sectors. It’s down 17% for commercial office space, 25% in healthcare, 48% in retail and 53% in hospitality. The combination of remote work and flexible schedules will mean smaller footprints for in-person offices in the near future.
This means that landlords and owners need to adapt quickly to the shifting business landscape. Success depends upon close collaboration with tenants to understand tenant needs, as well as adaptive, flexible workspace design and redevelopment. Over the past five years, demand for flexible space has zoomed from 3% of the market to 25%, and that was before the pandemic. We think demand for multi-use properties is not only here to stay, it’s likely to accelerate well into the future.
Finally, it’s important to remember that amid all the uncertainty, there remain
certain truths unchanged by the pandemic. Work is still work and requires close person-to-person interaction, trust and collaboration. Office space, in no matter what form, must support and facilitate important work-based activities such as conversations, teamwork, professional friendships, mentoring, coaching, advising and pushing individuals and organizations to new heights. In the end, we all require a central meeting place that is both physical and spiritual.