Months after COVID-19 upended life as we know it, uncertainty remains. Nowhere is this more evident than in the commercial real estate industry, where sweeping changes to how people work, live and unwind have hastened development trends in some areas while bringing others to a halt.
The pandemic’s effects have made their mark on our day-to-day lives, but real estate development decisions are made on a longer horizon. Choices made now will have ripple effects for years and decades to come. While developers aren’t standing still, they are cautiously approaching changes to the places where we live, work and play that will make sense for both the short and long term.
Multifamily developments on the move
The suburbs are predicted to be the big winner in terms of where residential development occurs, as people look for more space to accommodate all the functions home must now serve. But it’s not as simple as people wanting more space and going out to get it.
More square footage always comes with a higher price tag and most apartment- and condo-dwellers have maxed out their housing dollars, spending roughly 30 percent of their take-home pay on housing costs, according to data from the National Multifamily Housing Council. With housing prices largely fixed, paychecks stagnating and student loan debt burdening an entire generation, it’s unlikely people will suddenly find new reserves to move into a larger space.
The suburbs offer a bit of pricing relief, but such a move comes with other tradeoffs that will outlast the pandemic. More room further away from the city center makes sense today, but what about when offices reopen and workers are expected to return, at least in some capacity? Public transportation has been just one of the victims of the virus’ spread, with ridership rates plummeting as people stay home and avoid crowded trains and buses. Will people really want to go back to car-congested commutes for the long haul or will transit-oriented developments regain dominance in the space?
Then there are the apartment and condo units themselves. Unable to add more space for less money and still command comparable pricing, developers are getting creative and finding novel approaches to extend the usefulness of existing square footage. Flexible features like Murphy beds and wheeled kitchen islands are suddenly back in vogue. The emphasis is on maximizing communal spaces—like living rooms—which demands that private areas like bathrooms, closets and bedrooms shrink. Instead of a second bedroom, some condo dwellers may find themselves with a slightly smaller den, without closets or windows, from which to work. Some developers have gone so far as to consider flexible floorplans, with residential lock-off units that can expand a studio apartment to a one-bedroom if and when it is needed.
With so much in flux, there is no clear answer to what multifamily housing developments of the future will look like. Whether units get bigger, smaller or more flexible will depend on many factors that are as of yet still unknown. For now, the priority for many developers is to compete for the largest possible tenant base, rather than entering niche markets, to see them through the short-term disruption in the market.
The office is dead, long live the office
By now, we’re all familiar with the prognostications of remote work. Some companies have already come out and said it’s the definitive future of their workforce and they won’t be forcing anyone to return to an office.
But it’s unlikely that all knowledge workers will be working from home forever. For one, many people are just tired of staring at the same four walls and are relying on their employer to provide relief—once it’s safe to do so. The boost in productivity that began in the early days of the pandemic has started to wane as more people grow bored, depressed, stressed and disconnected from their work teams.
This doesn’t mean we’ll go back to the office exactly as we know it. Where people have started to return to work in limited capacity, there’s a growing realization that the benefits of having people come in, put their heads down and attend to their tasks are minimal.
Instead, the office is being reconfigured to support collaboration, even in these times of social distancing. That means more small meeting rooms and open spaces where teams can gather to workshop the challenge of the day.
For many companies, talent is their main differentiator and we’ve seen a steady drive to win employees with magnet offices rife with amenities. The one-upmanship that began in the tech industry and trickled out to other companies is likely to continue when the office comes back online, with more amenities from outdoor space to restaurant-quality kitchens being added to draw people in and keep them engaged in communal activities while they’re on site.
In the short term, those kitchens will likely be handing out boxed lunches, but they continue to be incorporated into new development plans, which is a fairly good indicator that the office still has a role to play in getting work done.
At the moment, it’s incredibly hard to predict if corporate real estate needs will shrink post-pandemic. There are some indications that sprawling corporate headquarters may shrink while satellite offices around the country help bring together team members who otherwise would be fully remote. So far, this appears to be a redistribution of office space, rather than a resizing of square footage.
Embracing the great outdoors
Outdoor space has become the hottest commodity in many sectors, but most essentially in hospitality, restaurant and leisure spaces where outdoor areas can make or break a business.
With the summer months long behind us, the challenge now is extending the outdoor-recreational season for as long as possible. Rooftop patios and sidewalk dining areas are being augmented with igloos and greenhouses to help diners stay comfortable and safe. Businesses with more land to tap are considering fire pits and other improvements to keep outdoor space usable nearly year-round.
While many hospitality developments have been shelved due to the pandemic, the ones that are moving forward are doubling down on the flexibility that is evident in other sectors. Mixed-use spaces that combine dining, recreation, shopping, events and other activities can augment areas of the business that are off-limits with ones that are allowed to operate throughout the pandemic. Creating space for curbside pick-up and building to accommodate more space between restaurant tables are all feasible now and won’t impede business once the pandemic has passed.
It’s undeniable that commercial real estate has been hard hit by the novel coronavirus, but that doesn’t mean there aren’t new ideas and approaches that can help usher in a new era of design and development. A little creativity, flexibility and patience will go a long way to making today’s spaces useful for this unusual moment and relevant for the long-term future.
About the Author
Andrew Roscoe is Eastern Regional President for Project Management Advisors Inc. (PMA), a national CRE advisory firm providing consulting services as the owner’s representative. Headquartered in Chicago, PMA delivers more than 25 years of project experience across industries and all project types.