CRE in the pandemic and beyond

The industrial market will likely remain strong and the office sector could see significant changes

Linda Lindner//January 11, 2021//

CRE in the pandemic and beyond

The industrial market will likely remain strong and the office sector could see significant changes

Linda Lindner//January 11, 2021//

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Since the start of the COVID-19 pandemic, the state, the nation and the rest of the world were forced to adapt. The commercial real estate landscape was no different – 2020 was a year of significant shifts in the market, including the accelerating growth of e-commerce and the wide acceptance of working remotely. And neither trend is likely to slow down in 2021.

The industrial and e-commerce sectors ended 2019 on a positive note, with high demand, low vacancy rates and robust development. Demand for space in 2020 – especially in the e-commerce area – further compressed an already historically tight market as the pandemic boosted the need for warehouse, manufacturing and cold storage space.

At the height of shutdowns during March and April, the office market went into a deep freeze; buildings emptied out as employees worked remotely. Closures across the Northeast Corridor pushed consumers to stay at home, and e-commerce posted its largest year-over-year gain ever. Given the increase in online shopping, logistics warehousing projects will likely expand in 2021.

As the deployment of a vaccine continues, speculation continues over when the market might return to pre-COVID conditions and whether those sectors will continue to perform well as demand rises for research and development as well as lab and technological space.

The office sector is expected to be the most uncertain. The pace at which employees return to the traditional workplace will depend on how building owners reassess their space requirements. There will likely be a transition and period of readjustment to support new workstyles brought on by the pandemic.

At the height of the COVID-19 outbreak, CRE companies quickly shifted to digitize operations. Many facilities were ordered to close when the governor issued executive orders to stay home, and those same buildings needed to adjust and adapt quickly to ensure worker safety once employees and tenants started to return.

Landlords upgraded and installed measures to reduce the risk of spreading COVID-19. Many followed the guidelines issued by the Centers for Disease Control and Prevention and quickly adapted their properties to include areas equipped with hand sanitizers; established policies and practices for social distancing; developed environmental cleaning and disinfection routines; implemented controls such as improving ventilation; installed high-efficiency air filters; established policies to limit the number of employees and visitors at any given time; reconfigured spaces to maintain proper social distancing; set up barriers between workspaces; and provided personal protective equipment.

Some employers have already decided that the return to office life may not be necessary. Remote work is becoming a standard part of daily life for an ever-increasing portion of the population around the world. Even though it’s been a developing trend for years, the COVID-19 pandemic threw the process into overdrive when it became good for business. Many employers have come to realize that into overdrive when productivity actually increased.

A recent CBRE analysis suggested that remote work could cut the overall need for office space by 15%. Separate surveys indicate the likelihood of some type of hybrid model of employees rotating their remote/office schedule in the future.

In a FlexJobs survey of approximately 4,000 people who have been working remotely during the pandemic, 95% said their productivity was higher than or the same as before the pandemic. They also reported having fewer distractions, more efficient meetings and a more comfortable work environment, all of which contribute to higher productivity, satisfaction and engagement.

Experts estimate that a good portion of the U.S. workforce will continue to work remotely through 2021 and into 2022. And a proposal to require the use of a platform that can verify billable hours by third-party vendors could bolster the trend. The bill passed through New Jersey’s General Assembly in July 2020 and on Dec. 14 the Senate State Government, Wagering, Tourism, and Historic Preservation Committee voted 4-0 with one abstention to advance the legislation.

The measure could be a game-changer especially for those contractors who bill by the hour as the monitoring software will validate their hours for accuracy and transparency. Sponsored by Assemblywoman Shavonda Sumter, D-35th District, and the measure is being pushed by software firm TransparentBusiness Inc., which developed a program that captures periodic screenshots and keystrokes of the computers it is installed on.

There has been some pushback to the legislation out of fear it would put personal information at risk and potentially put states in violation of federal privacy and security regulations. But TransparentBusiness says it protects the privacy and confidentiality of any data for individuals. The language of the bill — which the company says is modeled on legislation in Illinois, Minnesota, Missouri, and Rhode Island — also requires contractors to install tracking software at no additional cost to the agency they’re serving. The company boasts that it will save states “tens of millions of dollars with zero cost and zero risk, as the cost of compliance is borne by the contractor.”

Alex Konanykhin, the CEO and co-founder of TransparentBusiness said the legislative initiatives his company supports are not vendor-specific. “Our objective is to make TransparentBusiness synonymous with the categories of Business Transparency and Remote Workforce Management,” Konanykhin said.

Konanykhin, who developed the TransparentBusiness idea while trying to monitor his own company, said that paying contractors blindly results in massive over-billing.

As of 2017 the software was in use in 98 countries. In 2018, Konanykhin began working with legislators in states to mandate government contractors to verify the hours they billed to the government.

With or without the law, office tenants will be reassessing their real estate footprint and workplace strategies. The “work from home” trend is expected to continue as many companies become more comfortable with the efficiency and productivity levels of their employees. While the pandemic has created a new reality for the office sector, it has strengthened an already robust industrial market.