The sudden emptying of office buildings, shopping centers and restaurants prompted by COVID-19 was followed by a swift economic recovery. Nearly 20 months after the initial onslaught of COVID-19, the return to total normalcy in the real estate sector remains off in the distance. Employers and employees alike have learned they can function remotely or in a hybrid work environment, the rise in e-commerce accelerated exponentially and many employees are demanding — and receiving — extreme flexibility and workplace options to suit individual situations. Those were among the takeaways from Emerging Trends in Real Estate 2022, a report published by PwC US in partnership with the Urban Land Institute.
Work outside the office quadruples
Pre-pandemic, work-from-home (WFH) arrangements were reserved for parents tending to a sick child and employees that wished to “put their head down and complete pressing assignments away from distractions.” Attitudes shifted nearly overnight as almost all employees were suddenly thrust into WFH environments. Now workers are grappling with the question of “what comes next?” According to the report, the percentage of workdays outside of employer-provided workplaces rose from 5% to 20%. Recognizing that employees can be productive at home, many employers are offering long-term arrangements. Others, citing the loss of collaborative work environments that stimulate creativity, are demanding a return. Employees are also returning in large numbers driven by feelings of isolation, proximity bias and the lack of mentorship opportunities.
Return to ‘normal CRE’ unlikely
Change is inevitable among all business sectors, but nearly 70% of all respondents surveyed either strongly disagreed, disagreed or were unsure if the commercial real estate sector would ever return to pre-pandemic normalcy. This shift relates to the use of commercial office spaces, the configurations of WFH offices in apartments and homes, the change in tenancy in retail shopping centers and the greater emphasis and use of medical and healthcare spaces. The rise and now extreme popularity of curbside pickup services is not likely to subside.
“Commercial real estate is extremely cyclical and typically mirrors the performance of the national economy for better or for worse,” stated Owen Rouse, Vice President of Investment Sales, Brokerage for MacKenzie Commercial Real Estate Services. “The industry experiences and always survives change as reflected by tenants expanding, contracting or disappearing altogether; locations coming into or falling out of favor for different reasons; the morphing of interior styles and the emergence of new submarkets. Basically, this constant evolution means there is no real normal as companies and tenants will always search for a better and more efficient method to operate their businesses. As many have stated, COVID-19 acted as a significant accelerator for many of the patterns and trends that were already in motion. The major ‘reset’ as it pertains to working from home and the other locations will feel like profound change as it is occurring but appear to be ‘the norm’ over time.”
Flexibility, work/life balance drive decisions
Employees, by and large, did not have the option of working from home for long stretches but, now that they experienced and mastered the art, many are not anxious to give this benefit up. The hours gained from previous, lengthy commutes have been reinvested into increased quality time with family, exercise, improving mental health and partaking in hobbies. Not everything in his new WFH arrangement has been positive, however.
The line between home and office has been blurred beyond recognition and, instead of working fewer hours, many employees felt the need to justify their stay-at-home existence by burning the midnight oil. Spouses and children argued over whose turn it was to work from the dedicated office, as opposed to setting up shop at the kitchen table. Needy children, barking dogs and the constant stream of delivery people (to drop off packages ordered online) interrupted Zoom calls. The home was suddenly turned into the place to live, work, shop, entertain and exercise, and not every household had the necessary room to accommodate all the moving parts.
What workers crave most, according to the results of the report, is flexibility. This includes a say in where they work, when, and the condition and health protocols integrated into the standard workplace environment. People also want extreme choices and flexibility from their home (transforming closets into offices) and the places where they visit to shop and eat (the ability to choose curbside pickup, dine-in or drive-thru).
Hybrid emerges as new work model
Employers are not requiring every worker to return to the office on a full-time basis, as many recognize the cost savings benefit by reducing their real estate footprint. Workers involved with “heads-down” assignments, non-collaborative projects or who rarely mingle with others are prime candidates to remain working at home. The introduction of a hub-and-spoke work configuration, in which companies with downtown offices lease space in the suburbs, is an attractive proposition for workers seeking shorter commutes. A hybrid work model, in which employees divide their time in two or more places throughout the week, is emerging as the most equitable solution.
“One of the fundamental challenges with the new hybrid work strategy is to truly use the gains in efficiency for an improved work/life balance,” explained John Hutch, Principal of JP2 Architects. “We have experienced new efficiencies with the general acceptance of virtual meetings, but this has just led to more meetings and micromanagement from afar. Over time, this will balance out and we will learn how to appropriately utilize these new tools in our overall hybrid work strategy.”
The hybrid work model, Hutch added, “has created a new purpose in office design. It is now about creating an environment and providing tools that you don’t have access to in your home office. Collaboration spaces that started out trying to appeal to the millennials with fun gimmicky games, are now becoming the space that differentiates the workplace from your home office.
“We recently conducted an employee survey for one of our clients and one person mentioned that coming into the office made them feel isolated, because so few people were coming in and they did not have common spaces that connected the different department. It’s time to fix this and re-envision the workplace where people see the incredible value of coming in and also give them the tools to work from home so we can have the best of both worlds.”