In a world where rolling lockdowns and hybrid work is taking over the way businesses operate, what do commercial real estate investors and business owners need to know to adapt and thrive?
Hybrid work is the new normal
The past two years have made it clear that significant changes are coming for the future of office space. While some employees thrive in a full-time, work-at-home setting, others regularly prefer the energy and bustle of in-person interactions with coworkers.
The hybrid work model is an excellent compromise for people who work best when they are in the office but still face Covid restrictions. This model uses some combination of in-person and at-home work that satisfies the need for actual face time with concerns about keeping everyone safe.
By some estimates, remote work has reduced the need for workspace by as much as 20% over the pandemic so far, a trend that has severely impacted commercial real estate investors. Business managers have recognized that many employees don’t need to be in the office for a traditional 9-to-5 day.
Employees have appreciated and adjusted to a better balance of work and leisure. While some studies have found that enhanced digital tools make the virtual workspace as exciting as an in-person collaboration, others have found a lack of spontaneous, expansive creation when everyone is meeting through a screen.
We’ve answered some frequently asked questions about hybrid work to help you understand how this new normal could affect commercial real estate investors, landlords, and business owners.
What are examples of hybrid work schedules, and how will hybrid work affect office space leases?
One of the major trends spilling over into 2022 is the 3-2-2 workweek. Employees work three days in the office, work two days at home, and take two days off. The three office days might be staggered to allow for less on-site crowding, or multiple businesses might share a workspace to keep costs low.
Other businesses are moving to a four-day work schedule, with either a fifth day of remote work or four extended office days with a three-day weekend. A four-day week with extended days means buildings are open longer and completely vacant one day of the week. Commercial investors might find themselves in the unique position of navigating a lease that involves just 20 on-site days per month.
How do coworking spaces fit into new hybrid models of work?
Coworking spaces are uniquely adapted to hybrid work. When they first appeared on the scene in San Francisco in 2005, they were meant to address the needs of solopreneurs, freelancers, and contract workers who needed social interaction in their workday.
Today’s coworking spaces have also embraced a hybrid model, blending their original audiences with permanent satellite office spaces for established businesses. Commercial real estate investors who are open to this workplace model have a distinct advantage. The rise of coworking spaces as part of a hub-and-spoke model — one regional office with smaller satellite work options near where employees live — capitalizes on the work-life balance many employees crave while maintaining the crucial in-person functions of the office (without the long commitments).
How could hybrid work affect building out a new investment property?
In addition to the old real estate maxim (location, location, location), a new single-word guideline is emerging: design, design, design.
Commercial real estate spaces need extraordinary design and flexibility to meet tenants’ changing needs. Because different groups might be using the same office in a single day, design needs to be adaptive and accommodating.
While this build-out might be more costly than a building designed for a single tenant, it will offer landlords and real estate investors a more flexible space to fit a wider variety of potential tenants — saving money over the life of an investment.
Is commercial real estate still a good investment?
Real estate has historically been one of the best ways to build wealth, and commercial real estate is one of the smartest options to put your money to work for you through lease options. Even with companies downsizing and the location of work changing, this is still the case, and here’s why:
● Commercial real estate investment offers tax benefits (such as 1031 exchanges).
● Real estate commissions are lower and allow you to put more money into your investment.
● A realtor who understands trends in hybrid work can identify unique opportunities for investment properties that work well in this model.
Hybrid work can ultimately be beneficial for commercial real estate investors, business owners, and employees. Workplaces (and commercial real estate investors) that can accommodate hybrid work are most likely to thrive in a post-pandemic world.
Ben Mizes is the Co-Founder and CEO at Clever Real Estate, the nation’s leading real estate education platform for home buyers, sellers, and investors.