March 22, 2021
Over the decades, urban real estate has changed dramatically. 2020 marked another significant shift in the CRE landscape as businesses closed, people lost incomes, and there was a rapid exodus from major urban centers.
The changes that took place in 2020 are not expected to be permanent. However, there are trends that were already ongoing before the onset of the pandemic in 2020 that were exacerbated by its occurrence. These are the trends that are expected to maintain over the long-term, which may impact how landlords of multifamily and office real estate traditionally operate in urban areas.
Here are some of the trends that were already in place and have accelerated since 2020.
Increased Remote Work
Remote work has been on the rise in recent years. In 2019, the National Telecommunications and Information Administration reported that around 51 million Americans used an internet connection to work remotely out of 160 million employed. This includes part-time and full-time remote workers.
A Buffer survey in 2019 also showed that if given the choice, 99% of Americans would choose to work remotely at least some of the time for the rest of their career.
People were already working remotely, meaning they were not relying on office spaces as much as before. In 2020, 41.8% of the American workforce was fully remote. Research from Upwork, the largest online freelance marketplace, predicts that by 2025 around 36.2 million Americans will be working from home permanently. This would be an 87% increase over the pre-2020 numbers.
With so many people expected to go remote, what happens to all the existing office spaces?
Repurposing of Offices
Office real estate is evolving. It may not hold as much value for the sake of the offices themselves as much as the valuable space in urban areas. While the retail apocalypse happened fairly swiftly, the changes to office are less dramatic.
Employers are less keen on leasing office spaces and more interested in spaces for collaboration, brainstorming, and focused work. Many employees may switch to working remotely part-time, leading employees to gather in an office only when performing teamwork activities.
Despite the pessimism around the future of office, reality will likely play out differently with a change in the use of office spaces rather than a full discontinuation.
Shorter Lease Terms
Because of economic uncertainty in 2020, many businesses are choosing to lease for shorter terms. Whereas normal commercial leases would go on for 5, 10, or even 15 years, some companies are opting for shorter leases that pose less risk during further pandemic closures or market turns throughout 2021.
Continued Demand for Apartments
Although the demand for apartments was temporarily reduced in 2020 with tenants also struggling to pay rent in urban areas, multifamily is expected to regain its footing post-pandemic. Urban cities still hold a major appeal for many people, particularly people engaging in creative work. Those who work remotely full-time may choose to live in suburban areas, but part-time remote workers may choose to stay within the city limits instead.
As the post-pandemic economy stabilizes, people may willingly return to apartments for the cultural and social environment rather than the access to work.
While all signs point to office and apartments looking different in the future, there’s little evidence that the demand for either will disappear entirely. Instead, the usage of these spaces and the tenants initiating the leases may change, keeping demand stable moving forward.
« Previous Next »