There is a general sense that the world of Real Estate (both Corporate and Commercial) is due for massive change. The pandemic has shown that the way work was done before can dramatically change leading to more work-from-home days and smaller corporate workplace requirements. This then could have a knock-on effect on commercial real estate availability and cost over time. So here are my quick predictions on where things are headed.
1- Companies are going to shed leased space consistently over the next three years, but natural growth will leave most markets with net flat occupancy rates.
The pandemic has proven that most companies in most offices do not need as much space as they have. Across the board, they will begin shedding space when and as they can which will not happen immediately. However, natural growth in most markets will see this shedding of space being absorbed through organic growth in other businesses. In particular, flex office providers will pick up a lot of the available space to handle the new low-end requirements in the market.
2- Office demand will shift away from downtown business districts toward suburbs.
A natural consequence of increased home working and needing less space is flexibility to move that space closer to where employees actually live which in many markets is not the downtown area. Hubs will begin to migrate away from city centers with client-facing collaboration centers taking their place in the downtown market. This change in demand will result in a change to how investors allocate their real estate dollars with more moving outside CBDs.
3- Desk booking will have a two-year resurgence along with classic hoteling seats before collapsing as impractical.
It has been amazing to me how much VC and PE money has gone to real estate technology companies building desk booking and space reservation systems. No one has ever done it well and fundamentally it is a model that is not positive for the average employee using space. This spike in investment will increase over the next 18 months before a resetting occurs and companies migrate toward a smaller number of companies as it consolidates around a few winners. This market will collapse quickly as it is difficult to operationally manage and maintain for most corporate users.
4- More companies will align their People and Real Estate functions.
Never has the interconnection between Workforce and Workplace been more critical or noticeable. More and more businesses are having their real estate and HR teams work together on a long-term plan on what strategy is necessary to support the people strategy along with the space strategy. Organizationally, many companies will directly tie these two functions together giving real estate greater and greater people focus.
5- Furniture companies are going to be fashionable again as they shift to non-traditional collaborative options for offices.
The rise of greater collaboration in workplaces will mean a new rise in types and styles of furniture (likely with integrated technology) to support new ways of working. Furniture companies will take to this new world with exciting sales and marketing approaches to highlight how they can aid and improve the new world. There will be an influx of design and styling which will make office furniture highly fashionable for the next five years.
6- Most Brokers and the big Commercial Real Estate service providers are going to struggle to accept the new path forward.
Throughout the pandemic, this is the group that has most struggled with the coming changes to the industry. They have insisted everyone will be back in the office. They have tried to argue that companies will need more space and not less. They have presented cases for longer lease terms instead of shorter, more flexible terms. They have hesitated to help companies market and sublease their excess space. At every step, they have struggled to accept what everyone else sees as inevitable. Most will continue to struggle and we will slowly see a rise in more progressive thinkers in these areas as those who embrace smaller space and more flexibility will win a greater share of the business.