Understanding The Impact Of Remote Work On Commercial Real Estate Leasing
A lasting impact of the COVID-19 pandemic involves the surge in individuals working from home, which increased from 9 million to 22 million between 2019 and 2023, according to data from the United States Census Bureau. As a result of millions of people working in hybrid, flexible, or remote working environments, many businesses have experienced underutilized office space, leading to downsizing, subleasing, or giving up office rentals entirely. Learn how remote work has affected commercial real estate leasing, and discover how Harrison Law, PLLC might assist companies with their legal concerns; call (480) 320-2310 today to book an appointment with a knowledgeable Arizona commercial real estate lawyer.
What Is Commercial Real Estate Leasing?
Commercial real estate refers to property utilized for business reasons or workspace provision. Many properties fall into this real estate category, including factories, warehouses, office space, retail outlets, resorts, hotels, restaurants, bars, healthcare facilities, and shopping malls. While some companies own the premises they occupy, many lease them from the building’s owner, typically one or more investors.
In contrast with residential real estate leases, typically a monthly sum, commercial property lease rates are annual payments based on the property’s size (per square foot). Unlike residential leases, which are usually 12-month or monthly rolling contracts, commercial leases normally range from a year to a decade in length.
Understanding Remote Work
Businesses have increasingly adopted home working and hybrid work models in recent years to access a larger talent pool and provide employees with a more positive work-life balance and greater flexibility. According to the Bureau of Labor Statistics (BLS), in 2019, 6.5% of private sector workers fulfilled their duties from home. However, this number greatly increased during the COVID-19 pandemic, with many continuing to work remotely after the easing of restrictions.
This increased demand for working remotely has drastically impacted the commercial property market due to a reduction in the number of individuals commuting to their workplace, causing a reduced need for office space for employers. Coupled with greater demand for residential real estate, as a result of homeworkers looking to upscale to larger residences with ample workspace, this has led to a strategic rethink for handling commercial real estate.
How Has Remote Work Impacted Commercial Property?
Office, retail, and industrial properties have experienced changes as a result of more people working remotely. Here is an overview of these developments.
Office Space
Businesses are reviewing their need for office space because employees are increasingly working from home, leading to these organizations subleasing surplus space or downsizing. Other employers are switching to flexible office arrangements, including small satellite locations, co-working spaces, or rented meeting rooms. This has led to office landlords encountering new challenges and having to adapt to prevent vacant offices and potential cash flow problems, such as by reducing rental prices and offering higher-quality spaces prioritizing outdoor areas, greenery, and natural light.
Retail Space
Physical stores have seen an increase in demand due to the prevalence of homeworking, leading to retail spaces in suburban areas becoming more desirable. With fewer employees attending the office, people also have a greater desire to connect with others in these spaces, which has resulted in an increase in community-focused stores utilizing designs that seek to create memorable shopping visits and prioritize convenience, including spaces for click and collect orders and the implementation of contactless payment systems and other technology.
Understand the impact of remote work on commercial real estate leasing in greater detail, and find out how a seasoned Arizona commercial real estate attorney may help businesses overcome their legal issues. Contact Harrison Law, PLLC today to schedule a confidential discussion.
Industrial Space
Industrial spaces have also experienced increased demand due to remote working as a result of growth in home deliveries and e-commerce, requiring more logistics space and warehousing to facilitate these services. E-commerce firms are looking to relocate their operations to urban locations to reduce their transportation costs and make their supply chains more efficient. Alongside this, many industrial spaces are changing into small distribution centers or last-mile delivery stations while also implementing technology such as robotics and automation to streamline operations.
Strategies Implemented by Commercial Property Managers
Increased demand for home working in recent years has vastly impacted several industries, including commercial property leasing and management. Below is an explanation of the strategies implemented by commercial property managers to adapt to these changes.
Enhancing Tenant Experiences
As more individuals opt to work remotely, tenants are seeking workplaces that can boost their well-being in terms of social, physical, and mental health. In response to this, commercial property professionals look to enhance tenant experiences by offering various amenities, such as communal workspaces, cafes, and fitness centers, which also help to foster a community feel in these buildings.
Adopting Digital Technologies
Homeworking has increased the rate at which commercial property managers have implemented digital technologies. For instance, many have introduced cloud-based systems that help develop seamless, centralized, and streamlined operations, boosting collaboration and communication between tenants and property management and providing remote access to tenant information, financial records, maintenance schedules, and lease agreements. Another example relates to virtual property inspections and tours, as well as remote building monitoring, which enables commercial property managers to show properties to prospective tenants, identify and address maintenance problems, and utilize smart building technology to remotely control buildings’ lighting, security, ventilation, air conditioning, and heating to proactively maintain buildings, reduce downtime, boost operational efficiency, and improve tenants’ overall experience.
Commercial property managers additionally utilize digital communication tools, including messaging apps, collaboration software, and email, to engage with team members, vendors, and tenants, as well as video conferencing tools to provide updates and aid discussions and joint decision-making. On top of this, managers/owners of commercial real estate have implemented automated systems that allow tenants to report maintenance issues digitally, enabling property managers to prioritize and handle requests virtually, including remote coordination with contractors or maintenance teams, boosting tenant satisfaction.
Adapting to Tenant Requirements
Working remotely has altered office dynamics, leading to evolving tenant expectations. To attract new tenants and retain existing ones, property owners need to adapt to changing tenant requirements by providing spaces catering to hybrid work environments. For instance, working remotely has led to companies reassessing how much office space they require, leading to property owners offering flexible solutions, such as adaptable lease conditions and coworking spaces.
In addition, homeworking has led to feelings of isolation among tenants, resulting in property managers fostering online communities, in the form of digital events, social media groups, and forums, to facilitate tenant engagement and connections. Since the COVID-19 pandemic, when remote working became popular, users of commercial spaces are increasingly aware of health and safety issues. This has led owners of commercial real estate to implement strict health measures to reassure occupants, including touchless technologies, frequent cleaning schedules, and improved ventilation systems.
Discuss Your Concerns With an Arizona Commercial Real Estate Lawyer Today
Commercial real estate is an asset that is remarkably resilient to change, with many owners converting them to different uses to align with changing market requirements. The retail industry, for example, witnessed a significant shift from in-person to online shopping, which led to changed offerings in physical stores, reconfigured assets, and restructured business models, resulting in a sector that continues to perform strongly; office environments are now experiencing a similar change, and while adapting can take time, this industry is also quite resilient, with office space still featuring heavily in subsectors less impacted by remote working and utilized by occupiers who value properties’ location, amenities, and features. Explore the effects of remote work on commercial real estate leasing more thoroughly, and learn how an experienced Arizona commercial real estate lawyer from Harrison Law, PLLC can aid organizations with their legal queries; call our firm today at (480) 320-2310 to arrange a preliminary consultation.
