The COVID-19 pandemic has had an enormous impact on the day to day lives of people across the world. The consequences have been tragic and devastating, with thousands of fatalities with an estimated 167,000 job losses directly attributed to COVID in the U.K. alone.
According to sky.com, retail and aviation have been the industries hit hardest in terms of job losses, according to sky.com, with people choosing to shop online and enjoy a holiday in their home country.
COVID-19 and Commercial Real Estate
Overnight, the way people lived changed. In the U.K. and most of Europe, people could not meet, eat, shop, socialize and work the way they’d been accustomed to for decades.
For the first time in memory, the demand for office space plummeted, causing an immediate and long term challenge. In the short term, commercial estate agents had to survive, but there were and still are questions regarding the future of offices and people’s desire to work from home in the long term.
The short term challenges associated with cash flow limitations for tenants themselves struggling with hardships has been an immediate problem for real estate investors. Analyzing and evaluating property portfolios and judging whether assets are appropriate for a changing office landscape have been necessary loss mitigation strategies for investors looking into 2022 and beyond.
With remote work proving a success for many businesses, both large and small, and reports finding that employees wish to carry on working remotely, at least some of the time, will commercial real estate ever fully recover?
COVID-19, for the most part, accelerated existing trends that many property investors had already picked up on. Remote working and online shopping had been growing steadily for a decade or so preceding COVID.
Office Structures of the Future
Thanks to the pandemic and the evolving nature of the COVID-19 virus, the high density, open plan layouts that many offices adopted pre-COVID may have to be hastily reversed to offer an environment that meets safety regulations and keeps employees feeling safe.
Significant investment may have to be made in air conditioning, ventilation and heating infrastructures. With COVID spread mainly in places with poor or inadequate ventilation, for peace of mind, wellbeing and health in general, it is important to provide offices that take the risk of indoor transmission seriously. Those offices which fail to offer COVID-19 related modifications are likely to remain empty for a long time.
Whilst many employees are not willing to partake in a 100% shift back to office-based work, most knowledge workers want to visit the office at least once per week. With this data in mind and the need for social distancing measures into the foreseeable future, commercial real estate will likely soon experience a renaissance, especially if the building provides all the wellbeing bells & whistles that employees will undoubtedly come to expect.
In a recent survey carried out by Accenture, 83% of 9,326 workers stated that they prefer a hybrid working model, with the option to work remotely at least 25% of the time. There have also been several reports that younger workers will suffer at the hands of a 100% remote working model, as they will not be able to network and learn from more experienced colleagues whilst working from home. With this in mind, offices that provide well ventilated, COVID adapted working spaces are likely to rise in demand as businesses continue to adapt to the “new normal”.
Warehousing Demand Continues to Grow
In direct contrast to the plummeting demand for office space during the pre-vaccine-pandemic, industrial storage and warehousing have seen interest grow sharply.
As people have become accustomed to the convenience of online shopping, it seems unlikely that now this habit has been formed, people would revert 100% to bricks-and-mortar retail even if the COVID-19 virus were to disappear completely.
With this in mind, the demand for industrial warehousing for eCommerce companies is likely to grow, albeit at a pace significantly slower than the jump that was seen during the second quarter of 2020. Investors predict a steady growth in warehousing demand as they rush to embrace and develop the physical infrastructure for a growing online economy.
Retail to Housing
With big names across Europe closing their physical stores, the demand for commercial real estate on the high street has experienced a sharp fall since the pandemic began.
This fall has led to many investors buying up retail properties at low prices to convert them into residential buildings. This type of investment has been especially prevalent in the U.K., with the government passing laws to make it easier for investors to gain planning permission.
Bucking the trend, Aurora Eiendom AS in Norway acquired five shopping malls, suggesting that they still have strong confidence in shopping centres that can adapt to the demands of local customers.
The food sector remains strong, too, with supermarkets attracting buyers and investors thanks to their stability and length of income stream. The food sector of real estate traditionally captures around 5% of commercial real estate investment, but in 2021 this rose rapidly to 23%
The Future of the Office
As offices are upgraded and new offices are built, an emphasis on wellbeing, carbon emissions, and COVID safety is likely to inform their design. Green offices, as well as well ventilated ones, are likely to be in demand in the near future, with trendsetting corporate giants such as Amazon already paving the way with their famous Seattle Spheres, home to 40,000 plants.
International certifications for green offices have been developed, in order to provide clear guidelines for new buildings and for those looking to modify existing ones. A European Green Office Handbook also outlines advice and is the beginning of standardized green office guidelines for countries in the E.U.
Thermal scanners, glass shields and one-way corridors are now part of the workplace ? for businesses who can afford to install them. The evolution of the virus and the ability of scientists to keep up with an effective vaccine could also be a pivotal factor when future office trends and working habits are decided and adopted.
Even if COVID-19 ceases to be a threat, with a growing world population that has seen several diseases make the leap from animals and livestock to humans, it is likely that best practices in terms of hygiene and distancing will remain in the workplace for the foreseeable future.
With the trend of remote work accelerated and working from home tried, tested and legitimized, it is likely that more startups will do away with the overheads that come with office leases. In turn, this could impact the job market, with more overseas outsourcing and the possibility of phone answering services and virtual office addresses replacing in-house receptionists and bricks-and-mortar office buildings.
