The Impact of Remote Work on Commercial Real Estate
Last Updated on June 9, 2023 by Morgan Beard
Remote work is here to stay.
For some commercial real estate professionals, that is a scary concept. But it shouldn’t be. The impact of remote work on commercial real estate is seismic, and it’s important to understand how this fundamental shift in where we work affects the largest asset class in the world.
As businesses and employees continue to embrace remote work, the demand within the office market is declining, and the demand for residential properties in suburban areas is increasing. Meanwhile, a rise in demand for local community-centric retail and restaurant space is surging. The remote work impact is more than a trend, it is forever leaving a stamp on commercial real estate.
The Rise of Remote Work
With the widespread adoption of remote work, businesses have been able to tap into a larger pool of talent, and employees have been able to enjoy greater flexibility and work-life balance. The office sector is merging with a hybrid work model that favors a great work-life balance and centers around the employee.
According to a study by FlexJobs and Global Workplace Analytics, the number of remote workers in the US increased by 159% between 2005 and 2017. The COVID-19 pandemic further accelerated this trend, with a Gallup poll indicating that 58% of US workers were working remotely to some extent in 2020. And while remote work was initially viewed as a temporary solution during the pandemic, it has since become clear that remote work is here to stay. Today, Flexjobs found that 80% of working Americans are employed in a hybrid office model.
The meteoric rise of remote work has significant implications for the commercial real estate market. With fewer people commuting to work, the demand for office space is declining. At the same time, there is an increasing demand for residential properties in suburban areas, where many remote workers are choosing to live. This shift in demand is causing commercial real estate professionals to rethink their strategies and adapt to the new reality of remote work.
The Impact of Remote Work on Office Occupiers
With more employees working from home, businesses are reassessing their commercial office space needs and are often downsizing or subleasing office space. Some businesses are also moving to flexible office models, such as co-working spaces or on-demand meeting rooms or smaller satellite offices. As a result, office landlords and commercial real estate owners are having to adapt to changing demand and offer new services and amenities to attract and retain tenants.
This shift has created new challenges for office landlords who have to adapt to avoid vacant office space and future cash flow issues. The significant decline in demand is forcing landlords to reduce rental prices and offer new services and amenities to attract and retain their tenants.This includes offering more flexible lease terms, implementing new technologies to enhance the tenant experience, and creating spaces that support collaboration and innovation. A potential positive side-effect of this is higher quality office space, more remote work opportunities and ultimately better access to a diverse and talented workforce.
In addition, the remote work trend has also highlighted the importance of office design, with businesses seeking office space that fosters employee well-being and greater productivity. Office spaces that prioritize natural light, greenery, and outdoor space for physical activity are becoming increasingly popular. As a result, office landlords and property managers are working to create spaces that reflect the changing needs of tenants and help support their employees’ overall health and wellness.
The Impact of Remote Work on Retail Space
Brick & mortar retail has boomed on the backend of remote work. Retail leasing is at an all-time high! According to a CBRE report, in Q4 of 2022, retail vacancy was sitting at 4.9%, that is 9 consecutive quarters of positive absorption in the market. As more and more people work from home, the dramatic increase in demand for retail space in suburban markets and some urban markets is palpable. People want a place to grab a quick bite or a quick coffee away from their home office or co-working space.
In addition, with less employees going into the office, there is a renewed human desire to connect with other people. Retailers are filling that office water cooler void, (which no one really liked anyway) with community-oriented storefronts that facilitate connections to ones home community. Nothing is better than walking into your local coffee shop and the barista knows your name. Or grabbing your groceries from the neighborhood market and running into your friends.
The remote work trend has also highlighted the importance of retail design, with retailers seeking to create spaces that prioritize convenience and a memorable shopping experience. This includes implementing contactless payment systems, creating spaces for pick-up and to-go order, and incorporating technology to enhance the shopping experience. In addition, retailers are looking to create brick & mortar spaces that build their brand name within a given community.
The Impact of Remote Work on Industrial Space
The remote work trend has had a significant impact on the demand for industrial space. More people working from home has created a surge in e-commerce and home delivery services. There has been a corresponding increase in demand for warehousing and logistics space to support these services. This has led to significant growth in the industrial sector, particularly in urban areas where space is at a premium.
In fact, more than 70% of U.S. industrial space was built before the 21st century, with roughly 1/3 of space aging out at 50 years old. Meanwhile, there has been double-digit annual growth in e-commerce sales post-covid. The aging industrial infrastructure cannot keep pace with the demand for this type of commercial property. Many e-commerce companies are looking to streamline their supply chains and reduce transportation costs by locating their operations closer to urban areas. In addition, a trend of industrial spaces being repurposed for last-mile delivery hubs or micro-distribution centers. The shift towards remote work has also accelerated the adoption of automation and robotics in the industrial sector, leading to a greater need for facilities that can accommodate this technology. The market is sitting at 3% industrial space vacancy and the race to build more space is on.
Commercial Real Estate Strategies in a Remote First World
Enhancement to the Tenant Experiences
As remote work becomes more prevalent, tenants are looking for more than just an office cubicle.They are seeking a workplace that supports their overall well-being, including physical, mental, and social health. Commercial real estate professionals are responding by enhancing tenant experiences through amenities such as fitness centers, cafes, and communal workspaces. These spaces not only provide value to tenants but also create a sense of community and belonging within the building.
Rethinking Leasing Strategies
A shift in leasing strategies for commercial real estate professionals has risen in response to remote work. Instead of focusing solely on long-term leases, landlords are exploring shorter lease terms and flexible leasing options. They are also offering more tenant-centric leasing agreements, including options for rent abatement or deferral during times of economic uncertainty. These new strategies reflect the changing needs of tenants and help to attract and retain them in a remote-first world.
Real Estate Space Becomes Community Centric
In a remote-first world, commercial buildings have the potential to create community-centric environments that people actually want to go to. Spaces that foster collaboration and social interaction. Landlords, facilities teams and real estate departments are rethinking traditional leasing models and looking for ways to create value for tenants beyond just space. This includes providing shared amenities such as lounges, meeting spaces, and fitness facilities, as well as organizing community-building events and activities. By focusing on creating a sense of community and shared purpose, commercial real estate can become more than just a place to work or shop. It can become a destination that people want to be a part of and engage with, driving higher occupancy rates and greater tenant loyalty.
Ushering in the Era of Proptech
As remote work continues to shape the commercial real estate landscape, the industry is at a crossroads with a younger generation embracing technology as a critical tool for success. Proptech is a new sector of SAAS that is catapulting real estate and real estate accounting teams into the 21st century. Modern workflows are being built in the proptech landscape to improve efficiency, automate repetitive tasks, and analyze real estate data as a whole. Ultimately, proptech solutions can help commercial tenants adapt to changing space needs brought on by remote work. Here are a few frameworks that are ushering in the era of proptech:
Embrace technology as a tool
Rather than viewing technology as a threat, commercial real estate professionals should embrace it as a tool for success. This means exploring new software solutions and platforms that can streamline workflows, automate tasks, and provide greater visibility into property performance. By leveraging technology, commercial real estate professionals can be more agile, responsive, and customer-focused.
Elevate your real estate tech stack
To succeed in a remote-first world, it’s essential to have a robust and comprehensive tech stack. This includes leveraging tools for lease management, lease accounting, space utilization and ESG. By investing in best-in-class solutions, commercial real estate professionals can gain a competitive advantage and better meet the demand of their day-to-day work.
Shift from transactional to value-added services
Proptech also allows commercial real estate professionals to shift their focus from transactional services to value-added offerings. This includes providing data analytics, market insights, and other advisory services that help to empower decision making. By elevating the level of service they provide, commercial real estate professionals can build stronger relationships with tenants and enhance their reputation in the market.
Leasing Management Solutions in a Remote-First World
Commercial tenants in office, retail and industrial spaces are navigating a new normal. In a remote-first world, it’s crucial to have a lease management solution that is cloud-based and accessible from anywhere for your entire team. Here are some lease management software features that are a must for your tech stack:
Powers the entire lease life cycle:
The commercial real estate process impacts numerous stakeholders. From tenant-rep brokers to lease administrators, legal teams, and lease accounting professionals, the lease management process is a collaborative effort. If your software only solves one piece of the lease lifecycle, then you are leaving your business at unnecessary risk.
Intuitive & easy to use:
An intuitive and easy-to-use interface is a must-have feature for lease management software in a remote-first world. It’s important that the software is user-friendly and can be easily navigated without extensive training. This includes features like a dashboard that provides a clear overview of key lease information, as well as search & filter functions that make it easy to find specific details, and intuitive workflows for common tasks such as lease renewals or terminations.
Customization:
Each commercial tenant has unique needs when it comes to lease management. That’s why it’s important to choose a software solution that can be customized to meet the specific requirements of your business. This might include features such as custom fields, flexible reporting options, as well as quick and easy exporting.
Remote work is here to stay. No sector is impacted by this shift more than commercial real estate. It has never been more important to deploy tooling that enables collaboration, automation and data-driven decision-making. A cloud-based lease management software can streamline workflows and ensure everyone is on the same page. By leveraging technology to manage leases more efficiently, commercial real estate can become a strategic asset that drives business success. Check out how Occupier can help you elevate your lease management and accounting workflows.
