When Covid-19 first began, no one knew exactly how the commercial real estate (CRE) market would react. Now, over two years later, we have a better understanding of how the pandemic impacted CRE. This knowledge also gives us an indication of the most probable future real estate trends in this quickly changing landscape.
Must Read: How to Get Started in Real Estate with No Money
Covid-19 Caused Commercial Real Estate to Slow Down
Fear of contracting Covid-19 dramatically changed how businesses and employees viewed office environments. Before the vaccines were approved, the Centers for Disease Control recommended social distancing and reducing group sizes. In response to employees’ concerns, and in promoting safer work environments, many businesses transitioned from in-person offices to working remotely.
During this time, workers stayed employed, but left crowded city environments to work from home in the suburbs. According to a July 2021 article published in Newsweek, remote work almost doubled between 2019 and 2020. This shift changed the demand for commercial real estate as new buildings weren’t being leased and remained empty as workers adjusted to their new normal.
Commercial Real Estate trends at the beginning of the pandemic:
- Leasing transactions decreased 44% in 2nd Quarter of 2020
- U.S. Census Bureau did a 2020 survey where 36.9% workers said they telework
- According to Deloitte, in the Q2 of 2020, new distressed CRE assets rose to $30.4B
Important Commercial Real Estate Trends in 2021
By the Spring of 2021, as vaccines became widely available to the general public, the idea of going back to the office environment slowed down due to increased cases of the Delta variant. This new variant made worker’s reluctant to return to their old office. School closures also made it harder for parents to leave their home offices because of ongoing childcare needs.
All of these factors made returning to the office difficult and eventually led to The Great Resignation. Workers were attracted to companies that wouldn’t require them to physically commute to the office to do their job. Later in the year, a new highly contagious variant, Omicron, infected more people and delayed the return to commercial office buildings for many workers.
Trends for CRE during the pandemic:
- More inbound moves to rural areas in the first half of 2021 at a rate of 54.6%
- The National League of Cities, projected a $90 billion decline for CRE
- Omicron variant postponed some office reopenings, according to tech employers
Commercial Real Estate Trends to Watch For
When businesses left larger cities, such as New York, and no longer wanted to rent commercial office buildings, landlords offered incentives to encourage those who stayed. Some of those perks included several months of free or reduced rent in exchange for a long-term lease. As the pandemic concerns lessen, owners will reduce or eliminate those incentives and instead could look to government programs to remodel their buildings in order to attract new tenants.
Once the pandemic no longer dominates our lives and people start to return to in-person work, most offices will adapt to a hybrid model. This new paradigm will include work areas with more flexibility for co-workers to enjoy additional space, privacy, and technology for including colleagues who work from home. Some employees will offer flexible schedules and split the difference between going into the office a few days a week and working the rest of the time from home.
With a competitive labor market, many offices will try to make their spaces better than working from home. This effort might include expanding work areas, incorporating better HVAC, increasing natural light, and creating pleasant spaces that benefit employees both physically and mentally. Many tech companies are also incorporating technology into their workspaces to make remote workers feel more included. This strategy includes adding larger screens at eye level in different meeting areas.
Depending on the zoning and lease requirements, some companies will repurpose their extra space for other uses. They could include storage or develop partnerships with other companies in order to share the larger square footage and reduce costs. Also, building owners could convert unused office space into affordable housing to create another revenue stream for their empty space.
Growing cities with major metropolitan development will provide good opportunities for CRE in 2022 and beyond. Popular cities right now include: Nashville, TN; Charlotte, NC; Denver, CO; West Palm Beach, FL; Miami, FL; Boston, MA; Austin, TX; Raleigh-Durham, NC; Dallas/Fort Worth, TX; and Washington, DC – Northern, VA. Many of these offer advantageous access to all the amenities of larger cities, while also being closer to the suburbs and reducing commuting times for employees who no longer want long commutes.
Related: Work-from-Home Real Estate Jobs
Considering a Career in Real Estate?
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Jennifer Schmidt is a freelance writer in Vancouver, Washington, who specializes in real estate topics.