The past two years have been hell for commercial real estate professionals with the COVID-19 pandemic keeping office towers, shopping malls and hotels empty for large periods of time. While things are undoubtedly getting better and people are once again going back to large commercial buildings, the industry has been forever changed by the last two years.
“It’s hard to put into words the extent to which the commercial real estate business has been changed by COVID,” said Kris Thorkelson, owner of the property management company Thorwin Properties in Winnipeg, Canada. “Commercial real estate in many ways is a different business than what it was in 2019. That’s not necessarily a bad thing. It’s just a reality.”
Consider the widespread shift to remote or hybrid working. For good or ill, the pandemic showed many businesses that they can maintain productivity even when their workers are not at the office. This, in turn, has led many commercial real estate tenants to request flexible and short-term lease structures.
And this trend may only just be starting. As larger, existing leases come up for renewal in future months and years, and there is more clarity around the extent to which remote work becomes permanent for some companies, the industry could see much shorter leases with potentially new and different terms.
In particular, expect “force majeure” and “unavoidable delays” definitions to be revised to account for circumstances like a global pandemic.
“Expectations are going to need to be adjusted in commercial real estate,” Thorkelson said. “The days of 10-year leases may very well be over. For some veterans of this industry, that may be hard to accept. But we need to adapt with the times.”
Another thing commercial real estate clients want are new office designs. While some companies are forcing their employees to come back to office, many others have accepted that flexibility will be an important recruiting and retention tool, even after COVID-19 passes. As such, they’re actively exploring ways to make coming into the office more attractive to employees.
That could be through physical attributes of the office space, to make it feel safer, or additional amenities.
As Brosnan C. Hoban, Forbes Councils Member, wrote in Forbes in April 2021, “Gone are the days of drumming up interest with communal lounges, fitness rooms, access to public transit and indoor meeting rooms. Potential tenants now want to know that a commercial property is equipped with high-quality indoor air filtration technology, touchless technology, building apps and technologies for remote meetings, ease-of-access features, outdoor amenities and a specific attentiveness to health and wellness procedures.”
Said Thorkelson: “I think this is going to be one of the biggest issues facing the commercial real estate community in the coming years. Companies want their employees to work from the office, because it allows for greater collaboration. But employees have found they enjoy working from home, because they can avoid long commutes, because they feel safer, because they can handle personal tasks while working.”
“There’s a real tension here, between what employees have learned they can do by working remotely and what companies want for their labor force. The office space is going to become a big factor in whether companies are able to attract employees back to the office. And making those office spaces appealing and inviting is going to become the responsibility of commercial real estate professionals.
“We need to have deep discussions now about what workers want from their office spaces and then respond accordingly.”