Is Commercial Real Estate a Dying Industry? Interesting Statistics on Corporate Real Estate Post-Pandemic

As the world is recovering from the pandemic and businesses are quickly returning, it’s not quite what it used to be. Several industries have changed and consumer behaviour was fast-tracked to adapt to e-commerce and digital technologies. Even as we continue to recover, there are looming fears of a global recession. With high inflation, geopolitical instability, and rising interest rates, economists predict that the possibility of a recession in the next 12 months is now at 63%.

So what does this all mean for the real estate market post-pandemic? To get a better grasp of what may happen in the future and make informed decisions, we’ll look into what exactly happened during the pandemic and how the real estate market has changed in terms of locational strategy and workplace uncertainties.

So if you want to learn more about how to make better decisions in the real estate market, keep on reading!

The Real Estate Market During the Pandemic

The COVID-19 pandemic saw a sudden drop in corporate and commercial real estate during the early phases of the pandemic. The International Monetary Fund notes that while commercial real estate is slowly recovering, the recovery is tied to the trajectory of pandemic recovery. For example, areas that applied stringent restrictions during the pandemic have resulted in lower prices. Vaccination rates, e-commerce, and work-from-home arrangements also have an impact on demand.

But where will the market go from here? It’s easy to be optimistic and bank on time-tested concepts in the industry, but understanding the shifts brought about by the pandemic is important if we want to survive future disruptions.

Locational Strategy

A widely accepted concept in the industry is locational strategy. This is still true to this very day, but not in the way most of us think. Locational strategy is often used to mean being able to locate in hotspots and urban centers. Now that we’re recovering from the pandemic, it’s important to update our knowledge.

The Pew Research Center highlights that “8% of Americans – 26.5 million people – moved from one U.S. home to another between March 2020 and March 2021, according to data from the Census Bureau’s Current Population Survey.” Surprisingly, this amount is not significant. In fact, 2020 recorded the lowest rate since the government began tracking this data more than 70 years ago.

However, the reasons for moving have changed. Many people moved away from populated cities to reduce the risks of sickness; in addition, rising inflation has made people move to less expensive cities. Remember, however, that a national statistic doesn’t really show locational differences. Here’s a quick look into moving rates among cities back in 2020:

Top 10 States people are moving to:		Top 10 States people are moving from:
	Population Increase:		Population Decrease:
Idaho	66%	New York	66%
North Carolina	65%	Illinois	63%
Maine	62%	New Jersey	61%
New Hampshire	62%	Louisiana	60%
Alabama	61%	West Virginia	60%
Washington D.C.	60%	Nebraska	58%
New Mexico	60%	Minnesota	58%
Nevada	60%	Indiana	58%
Alaska	59%	California	57%
Kentucky	58%	Iowa	56%

Table Source: Bankrate

The Pew Research Center also conducted several surveys regarding city migration. Their 2021 survey found that just a quarter of Americans who moved due to the pandemic have since moved back to their home before 2020. In addition, the share of Americans who want to live in a city is now down to one in five, from the previous one in four, and the preference for suburbs increased from 42% to 46%.

Let’s take a closer look at where people work and live. From the US Census in 2021, approximately 38.19% of the working population lived in a principal city while 61.81% lives outside principal cities. Most of these people worked in the metropolitan area where they live.

So what can we take away from these statistics when thinking about locational strategy?

Here are some things to consider:

Corporate real estate market recovery depends on where it’s situated.

You need to be familiar with your chosen location or where your portfolio is located — this doesn’t just mean key landmarks and businesses, this now means pandemic recovery policies, business policies on work-from-home arrangements, and even attitudes towards vaccination.

People are increasingly more interested in living in suburbs.

It was found that only a quarter of people who moved during the pandemic moved back to where they lived before — where is the rest of the 75% then? Moreover, more people prefer living in the suburbs and more businesses are accommodating hybrid and even remote work.

While this may not pose an immediate issue in the near future, you may consider varying your portfolio to accommodate changing living and workplace trends.

Workforce Uncertainties

The pandemic brought about societal changes and sped up the development of e-commerce and remote work.

In a span of a quarter, e-commerce sales jumped from 154 billion U.S. dollars to 203 billion U.S. dollars from Q1 of 2020 to Q2 of 2020. Since then, sales have steadily grown to over 257 million U.S. dollars in Q2 of 2022. Despite soaring sales, uncertainties face the industry in the face of supply chain disruptions and retail stores opening up again. In the adjacent Tech industry, there have been more than 85,000 workers laid off in job cuts this 2022.

This brief discussion on industry uncertainties trickles down to corporate real estate and has 2 specific implications:

How can your own company adjust to changing expectations of what a workplace should be?
How can these real estate portfolios remain profitable when so many companies are downsizing and facing uncertainties?

Post-Pandemic Workplace Culture

Workplace culture is changing. Before the pandemic, only 17% of employees in the United States worked from home and this increased to 44% during the pandemic. Since then, several studies have been done on the productivity of remote and hybrid work.

Keep in mind that no matter what you think about remote work, it’s here to stay. Standford Economics Professor and Co-founder of WFHResearch, Nick Bloom, observes that WFH arrangements have stabilized at 30% in the united States and even a recession won’t make it lower than that. Take a look at these surveys and predictions:

LinkedIn surveys have shown that over 56% of workers prefer a mix of in-person and remote work.
A survey from Robert Half Talent Solutions found that while 66% of 2500 managers prefer in-person office, 50% of 1000 employees would look for a new job if they’re required to go to the office full time.
Upwork’s Future Workforce Report 2021 predicts that 40.7 million Americans will work fully remotely in the next five years.

Still not convinced with remote and hybrid work setups?

Some managers and employers may be concerned about productivity, but these are unfounded. In fact, according to Tsedal Neeley, author of the Remote Work Revolution and the Associate Dean of Faculty Development and Research Strategy at the Harvard Business School even goes so far as to say, “Considering remote workers as less engaged than their office counterparts is a dangerous and completely inaccurate perspective.”

Both the hybrid and remote setup has advantages in terms of productivity and employee retention. From our articles, “Work From Anywhere Impact on Job and Satisfaction and Productivity” and “Why is Hybrid Work Better?”, we found that work hours flexibility is the main reason why working from anywhere and hybrid setups can increase productivity. Not only that, the setup reduces commute expenses, creates better work-life balance, and improves health and wellness — resulting in happier employees.

The Occupancy and Utilization

Here’s something to think about: according to Relogix’s benchmark study, global office spaces had an average occupancy of 65% pre-pandemic — about the same as having employees in the office three days in a week. That number is, in practice, the same as the hybrid setup of three days in-office, two days work from anywhere.

This percentage fluctuates depending on location, with North America having slightly less and Europe having slightly higher occupancy pre-pandemic. However, the data is clear: in terms of people being physically present in the office, three days has been the effective norm.

However, a pure occupancy metric only checks if an office space has someone in it, disregarding how long the space was used, what it was used for, and whether the time spent at the desk was actually productive. When we input additional factors such as duration of use or productivity, the demand for office space decreases even further.

How We Use the Office Space

We can further analyze the demand and necessity of office space by looking at how people use the office. Occupancy is limited in its scope in that it only checks if a desk was used in a day, week, or month, leading to a simply yes or no. Utilization further refines the data by checking the duration of a desk’s use.

The global average of desk utilization shows that the average total hours of use for a single-person desk is about 8% — or a little under forty minutes. This trend isn’t unusual; meeting spaces have the utilization at 13%, closely followed by ancillary services at 12%.

Converting this to practical terms, we can see that office real estate doesn’t necessarily have to be as large as it currently is. Furthermore, it raises another question: since people aren’t using their desks as much as we think while in-office, do they have to come in at all?

Future of Real Estate Portfolios

The workplace model’s impacts are not limited to your own workplace but businesses in your portfolio. Flexibility and future-proofing are 2 key elements that real estate professionals should be aware of.

Flexibility

CVP of Global Workplace Services at Microsoft & Corporate Board Member, Michael Ford observes that 66% of decision-makers are now considering redesigning physical spaces to better accommodate hybrid work environments. He also emphasizes that “there’s no “one size fits all” approach globally, and corporate real estate professionals must invest in building an ecosystem that balances organizational success with individual growth and creativity. The key to solving this challenge is flexibility.”

Real estate flexibility can be achieved in 4 ways:

1. Getting Insights from Data

Reinventing the workplace shouldn’t be based on singular data. For example, when you observe that employees are keen on going to the office due to network connectivity, collaboration, and social interaction, these should be analyzed alongside broader research. Combine and analyze data from your building management system, feedback from employees to better understand their actual working habits. Insight from these data is critical for your real estate portfolio strategies and approach.

2. Experimentation

It’s not enough to simply act on the insights you get from data since they will be imperfect. Keep testing solutions until you find what works for you, here are some ideas on what that can look like:

Operable walls
Movable desks
Conference rooms that accommodate various types of meetings for in-room and remote participants
Flexible workspaces

3. Stay Ahead of the Curve

Michael Ford also notes that there is a growing skepticism around the traditional corporate work experience. In particular, “The next generation of talent was already signalling choice as a defining characteristic of their desired working experience—the ability to choose how, when, and where they work across an ecology of places, people, processes, and projects.”

4. Asset and Portfolio Optimization

Aside from the former, real estate professionals can also achieve more flexibility in asset and portfolio optimization. According to Deloitte, value creation in real estate typically comes from two sources:

Increasing income
Reducing costs

Optimization can seem difficult at first, but here are some simple steps to help you get started:

Review whether your assets are aligned with your business goals. This will involve a current state assessment of your technology, people, and processes.
Identify all your assets and determine whether they’re liabilities, supporting, or whether there are gaps and space for improvement.
Identify what to do with your assets — whether you get rid of liabilities, capitalize on good assets, or add new assets in your portfolio.

With digital technology developments, portfolio management tools from standardized reporting to cloud-based platforms can make the process and decision-making more efficient and effective.

Future-Proofing

Chief Executive Officer, Asia Pacific of JLL, Anthony Couse shares that “A future-proof office is one that incorporates quality spaces, sustainability and technology to elevate employees’ wellbeing and performance. Today, these elements come together to create a holistic environment for current and future employees, who will prioritize companies that align to their needs and values.”

At the heart of any business is the people behind it. It pays to know what they value and expect from their workplace. Workplaces are now increasingly human-centric, with growing calls for better health and well-being, and sustainability.

Sustainability

Buildings account for 60% of carbon emissions in cities and people are more conscious of environmental, social and governance (ESG) goals. Sustainable workplaces are no longer a “nice-to-have” but an expectation.

Today, 88% of corporate real estate professionals expect to maintain or increase investments into zero or low carbon criteria in new locations. Not only will this contribute positively to the environment, but it can also attract talent and engage employees.

Health and Wellbeing

While the health and well-being of employees have long been a consideration for many companies, the pandemic became a catalyst for more businesses to take their employees’ health and well-being seriously. Janet Mertens, Vice President of Research at The Josh Bersin Company, shares that “most organizations are now looking at wellbeing as a constellation of mental, physical, social, and financial health.”

However, we still see rising rates of burnout across all industries. The efforts of companies in this respect are still lacking. Health and mental well-being in the workplace is more than just providing stress management tools and yoga sessions, it’s looking at how the organization runs holistically.

Janet also shares their concept of the Healthy Organization in the table below:

While CRE professionals may not be able to impact all aspects of creating a healthy organization, there are several ways to support the aforementioned factors. Consider in particular “design workplaces, tools, and tech to be accessible for all abilities.” Despite being ranked low in the table, this can be a key factor for the others.

Here are some ways your portfolio can impact healthy organizations:

Improving and adding facilities focused on wellness programs
Enable various types of engagement through technology and meeting spaces
Creating quality workspaces as opposed to increasing quantity of workspaces
Improve building management tools

Rethinking Real Estate

We can’t really tell what the future will hold for corporate real estate, but we can become aware of underlying patterns of what is happening now.

Many people are still stuck in the mindset that everything will go back to “normal” as we recover from the pandemic. There’s no such thing as “normal.” Especially once we realize that the pandemic forced societal changes and even sped up things that were already developing.

Now’s the time to think more carefully about your strategies. Now that you know these current statistics and trends, how can your portfolio be adjusted accordingly?

In summary, here are a few things to reflect on:

How has the location of your portfolio changed and what kind of changes should be made to adjust to the new business climate?
How can your own company adjust to changing expectations of what a workplace should be?
How can your real estate portfolio achieve flexibility?
1. What insights can you gather from your current data?
2. What solutions can you test and experiment with to find the right fit for your portfolio?
3. How can you optimize your assets and portfolio? In particular, getting rid of liabilities, capitalizing on good assets, and adding or improving assets?
4. How can you rightsize your portfolio to meet the needs of a post-pandemic workforce and workplace?
How can you future-proof your real estate portfolio?
1. How can you incorporate or improve environmental, social and governance (ESG) and sustainability goals in your portfolio?
2. How can you create a quality workplace that supports people’s health and well-being?