The pandemic impacted life and business in many ways — some of which we are still trying to understand. In terms of Commercial Real Estate, office space may have been impacted the most.
As of Q1 in 2024, some of the impacts of the pandemic on office space include:
According to data from Cushman & Wakefield, the average office vacancy rate in the US was approximately 12% in 2019, and rose to 18.5% in 2023. As long-term corporate leases expire and workers remain at home, many experts believe vacancy could edge up slightly higher.
Urbanization Trends: In some regions, the pandemic led to a temporary exodus from urban centers as people sought less densely populated areas. This trend affected the demand for office space in city centers, with some companies reconsidering their location strategies and decentralizing their operations.
Shift in Office Design: The pandemic prompted a reevaluation of office design to prioritize employee health. This included implementing social distancing measures, installing barriers between workspaces, improving ventilation systems, and enhancing cleaning protocols. Open layouts gained traction while more conventional office layouts lost ground.
Gallup Study: In an October 2023 study, Gallup found of the U.S. workplace:
Of the 125 million full-time workers in the United States, 50% — more than 60 million office workers told Gallup they can do their jobs from home.
Of that 60 million, a whopping 90% reported they don’t want to come to the office five days a week.
However, where downturns and bad news exists, there are still opportunities, many of which we will discover as we move further into 2024 and 2025. CEOs and Human Resources leaders around the globe are taking note of the critical role office space can play:
With less time spent together with coworkers, much of the on-the-job learning that occurs 'on-the-fly' has vanished. Leaders are concerned about the impact on employee expertise and culture. Virtual collaboration is generally less effective than in-person collaboration.
Research shows face-to-face requests are 34 times more effective than those sent by email, and that a physical handshake promotes cooperation and influences negotiation outcomes for the better (MIT Human Dynamics Lab).
So, where is the opportunity? While there's no crystal ball, these may be office sectors and organizations that will benefit from the post-pandemic landscape:
Non-Profits: many Non-Profit organizations need physical space to maintain and grow their mission — food pantries, thrift resale stores, and Houses of Worship.
Developers: there will be opportunities across the U.S. to convert office space into condominiums, housing, co-working and creative hubs.
New Investors: many office buildings will come up for Interest Rate adjustments in 2024 which will lead to new listings, short sales, and in some cases, bankruptcy. All of this activity could serve as an attractive opportunity for new commercial real estate investors to get into the game.
In any case, 2024 will bring new change and new opportunity for those who are ready to embrace it.
To your success,
Jason Huett
Collaborative Commercial, LLC
CEO | CMO
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