LEXINGTON, Kentucky – As residential real estate continues to strengthen, working from home and meeting hybrid schedules following the pandemic could significantly impact the commercial real estate market.
What do you need to know
- Permanent Remote and Hybrid Models Raise Concerns in the Commercial Market
- The number of people working from home is at an all-time high
- The Chief Executive Officer of the Chamber believes that recruiting staff is a top priority
- Louisville Real Estate Agent Doesn’t Expect Downward Trend
Nearly 100,000 businesses in America have closed since the outbreak of the pandemic, leaving many vacant offices and shop windows open. When people start returning to work, they will likely visit the office less often. Ashley Watts, President and Chief Executive Officer of the Kentucky Chamber of Commerce, said about 100,000 people left the state last year, and about 30% of Bluegrass jobs are currently in retirement, which is a “huge shift” from even a year. back when the restrictions of the pandemic began and were stricter.
“I think most of them will have full-time jobs from home in the future,” Watts said. “In Kentucky, we are a little different because we are a manufacturing staff, so there were many, many jobs that you couldn’t work at home at the kitchen table. I mean, if you make cars or do something in a factory, you cannot work from home. “
Regus, a company that evaluates and provides professional jobs, reports Fewer businesses are using the traditional office model and are reducing the amount of leased space per employee. According to research by Regus, 54% of employees worldwide currently spend half a week away from their corporate headquarters. This study also shows that the more popular reason for the rise in flexible work, chosen by 61% of respondents, was the pursuit of greater work-life balance after the pandemic.
“Many experts believe that the popularity of the traditional office has already peaked,” notes Regus. “Financial pressures are increasingly forcing companies to seek smaller, more flexible and cheaper offices.”
Regus research also shows that 61% of workers would actively change jobs to accommodate flexible work, and 93% would choose a teleworking company instead of one that did not.
“Companies know they have to be very creative because there is part of attracting talent where there are almost two jobs for every person and so people are actively looking for work, right now is a good time to be in the job market,” Watts said. … “Part of that benefit is a better work-life balance while working from home. I think you will see that companies will almost make some people work from home, otherwise they will lose a lot of the talent that they have right now. ”
Bill Menish is the owner, broker and managing director of SVN Menish Commercial Real Estate in Louisville. He said the commercial real estate markets in major cities such as New York, Los Angeles and Chicago could be hit by people working from home. However, he doesn’t expect the same trend in Louisville or cities of comparable size.
“I think there is an attitude that we all thought that everyone would work from home, because we learned that we can do it,” he said. “Now I hear that we are not doing so much – there is no team building and familiarity with the experience of other people, and there is an impetus to return to the office, at least it feels like I am receiving. But in Louisville, Kentucky, I don’t think people working from home will damage commercial real estate. I think that we will keep an eye on the big cities, and if there is a forecast that the commercial real estate market will suffer due to the fact that offices are not rented in the city center, then this will happen. We’re going to see a little of this here in Louisville, but it won’t be dramatic. “
Indeed, the job site Indeed now has a section dedicated to working from home, and there are more than 250 ads for this type of employment in the Lexington area. As a sign of the new changes, the likelihood of mentioning “deleted” in messages is more than twice as high as in announcements before the outbreak. according to Forbes… The job site shows that almost 7% of job postings were deleted in February 2021, up from 2.9% in January 2020, and job seekers are now “twice as likely to seek remote work” as they were before the pandemic.
Menish cited the retail business as one of the reasons why, in his opinion, the commercial real estate market will not fall either in Louisville or in general. Most recently, in January of this year, he said that retail space was not projected to survive the pandemic, but his firm has since sold several retail properties such as malls.
“The last one we listed had so many offers during the first day of advertising that we decided to make a so-called ‘call for suggestions’ when you choose one day and, if you want, you deliver your offer on the same day,” said is he. said. “We had a significant number of bids and received almost the full asking price. Everyone was happy with the result. This is not an office space, but it is the same impact or problem after COVID, and things are not going as expected. “
In addition to telecommuting in-state, Watts said Kentucky has the opportunity to benefit from recruiting telecommuters in out-of-state companies.
“It’s kind of a good opportunity for people to stay in Kentucky or move here, but maybe work for an out-of-state company,” she said. “We thought we could attract some remote workers here because of our low cost of living, our geographic location, etc.”
Despite the progress in vaccinations, workers were in no hurry to return to the office, one expert said. article in The Economist… At the beginning of May, only one in 20 buildings in America was filled above 10%. As the return to work is just beginning, incentives are still in place, and long-term leases have not yet expired, the magnitude of the overall financial losses for companies remains unknown.
“Office property has been hit by COVID-19,” the article says. “The price index, based on estimates compiled by research firm Green Street, is 9% below its pre-pandemic peak in America. The value of shares in real estate investment funds investing in offices remains 13% below the level of early 2020. Central banks are on the alert. The dependence of commercial property on debt financing means that a downturn could backfire on the entire financial system. ”
To justify owning or leasing office space, many companies have adopted a model that allows employees to work from home and in the office.
“We see a lot of employers offering what we now call hybrid jobs, where you work two or three days in the office, two or three days at home, and sort of make that schedule because that’s about talent acquisition.” Watts said. “Companies want to retain their employees right now – labor issues are a top priority for every employer in Kentucky – so the hybrid model is what we see as the most popular because I think we all know we can work from home. What the companies have realized over the last year is that the collaboration of just being together and being in a group has been a little lost. I think the hybrid model is probably the best fit for many jobs. “
The insurance company Humana, headquartered in downtown Louisville and two offices in Lexington, occupies a lot of commercial real estate in Kentucky. If this company, for example, decides not to return to the traditional office model, it will create a lot of vacant office space in two major cities in Kentucky. Company spokesperson Jana Lindsay Jones said the company plans to fully reopen its offices after Labor Day and will be flexible in responding to employee needs as they will have the opportunity to “re-enter the workspace” during that time.
“Humana and others, where people mostly worked at the desk and most of the work was done on the computer, even before the pandemic, are moving to a hybrid model,” Watts said. The pandemic has obviously accelerated this. I think with buildings like this and downtown, it will take some time to adjust and see where they are going to land. I do see that nowadays, cities across the country, not just in Kentucky, will become less populated because people will work from home. ”
Menish said that another reason he believes the market will stave off a plunge is creativity. A developer with whom he often works has implemented a post-pandemic vision and is currently considering several projects.
“It’s a simple concept of several two-story buildings in an office park with 1,500 to 2,000 square feet per floor and an elevator, but you only share the elevator with the people you work with because they take the elevator to the second floor and the rest go straight to the first. floor, ”he said. “He is doing this to combat fears in the aftermath of the pandemic. This is an interesting plan, and the developers are thinking about how we can get around these potential problems. “
Working from home, post-pandemic fears and unrest are some of the reasons Menish said companies may or may not be located in downtown, but that doesn’t necessarily mean they’re not using office space.
“We are quickly filling places around Jefferson and other counties, perhaps out of a lack of desire to be downtown,” he said. There is a great desire to return to normal life and start a business. Entrepreneurs have had a lot of money on the sidelines and are also coming into play with new opportunities. So here in Louisville we don’t see any negative consequences yet. “