Kyle Crown is the president of Crown Commercial PM† He has a BS in business administration from the Wharton School at the University of Pennsylvania.
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If you’re tired of reading articles about the impact of the pandemic on real estate, just imagine how sick I am to write them. There are only so many synonyms for ‘pandemic’. But the truth is, we all live in a reality that has been irreversibly changed by Covid-19, and the commercial real estate market is no exception.
Since the onset of the global crisis, the perceived fate of commercial real estate (and office real estate in particular) has ranged from grim to hopeless, depending on who you ask. However, new circumstances make for a less alarming picture and it seems the sky isn’t falling after all. In essence, reports of the death of office real estate were greatly exaggerated.
Google started on April 4th requiring to allow its employees to work from their physical office again for the first time since March 2020 (from three days a week). Since the company is widely regarded as an epitome and standard-bearer of corporate culture and commonly seen as an employee empowerment, it follows that many large companies may soon be back in person, boding well for the future of office real estate. The pandemic has proven that certain jobs could exist without a fixed physical location, but its aftermath has shown that more businesses than initially expected could return to traditional workspaces. only 16% of companies worldwide are completely remote. In other words, the glass is not half empty for office real estate; it is about 84% vol.
In the case of Google, it’s important to note that their three-day-a-week expectation of employees doesn’t mean they need less physical space for their offices than when employees work full-time on site. Even companies using a hybrid approach (part remote, part in-person) require the same square footage as if all their employees were working full-time in person. I know this from experience: My team has been in the office four days a week since July 2021, and the days we take away from home don’t lessen our need for space when we’re on site. It’s possible that some companies are developing plans to rotate employees in and out of different spaces based on their home days, but it’s hard to imagine those employees responding well to having to uproot and move all their stuff accordingly.
Furthermore, it is conceivable that the recent outing moving to a bear market will help smooth the balance of influence between employers and employees more quickly, giving companies more leeway to ask team members to return to their physical offices. In essence, this could hasten the end of what has been called the Great Resignation, where employers have struggled to keep vacancies filled. This should lead to a greater demand for office real estate.
The most important and useful conclusion from all of this is that the long-term outlook for office real estate is much better than it was two years ago and a little bit better than a year ago. That trend could continue, so I think those rushing to sell should pump the breaks. Those who think they can buy at a bargain should go ahead and do it.
It is in human nature to overreact and fear the worst. Do you remember the Y2K bug? It posed a threat, but the preparations made it irrelevant, and in the end it didn’t cause the destruction many had feared. Think the same way about office real estate in the post-pandemic landscape: Experts were right to predict reduced demand, but those who predicted the end of the industry as we know it were probably a little ahead of schedule. Don’t let the fire get between you and the highest potential return on your real estate portfolio.
The information provided here is not investment, tax or financial advice. You should consult a licensed professional for advice on your specific situation.
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