Commercial real estate faces a long road to ‘normal’ even as workers easily return to office life
The days of weirdly empty offices and planes may be behind us, but as commercial real estate bounces back from the pandemic, everything from how we work to how we shop and travel is in the midst of a major readjustment, expert panelists said on Wednesday the second day of Mansion Global’s luxury real estate conference.
“What we’ve seen in New York in particular is that the progression back to the office has been very gradual,” said Peter Miscovich, general manager, strategy and innovation at JLL Work Dynamics. “As of October 8, we have just exceeded 20% occupancy. The Delta [Covid-19 variant] The surge really delayed what was to be a major comeback after Labor Day. “
And while some luxury retail outlets have made a comeback as consumers step out of their homes and flex their purchasing power, businesses that depend on foot traffic by office workers in traditional shopping corridors continue to grow. to suffer.
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“In parts of Madison Avenue, commercial rents are down 50% from their 2015 peak,” said Jonathan Litt, founder and IT director of Land & Buildings Investment Management. “It’s a ghost town because the offices haven’t reopened and international travel hasn’t returned to the city. Until we see what office use will look like and international travel returns, it will be difficult. “
Suffice it to say that while many signs are positive, commercial real estate has come out of the pandemic with a much less rosy image than what has happened in the residential realm. Below, more information on Wednesday’s roundtables on the ongoing development of commercial real estate:
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Offices may change, but they won’t go away
Their return may be slower than initially expected, but gradually the workers are returning to the offices.
“Yesterday at One Bryant Park, we hit 40% occupancy, up from 5% at the start of the pandemic,” said Douglas Durst, president of the Durst Organization. “We see the occupancy rate coming back quite strong and we expect normalization by the end of the year.”
With market watchers predicting the death of the office, Durst added: “I don’t know what they’re talking about.”
From an investment perspective, “I think the trends are positive,” said Tammy K. Jones, Founder and CEO of Basis Investment Group. “We have 35% [office] occupancy right now, and I’ve seen studies predicting that by the first quarter of 2022, we’ll be back to normal. I think it remains to be seen, but while the office has been disrupted, the office is not dead. “
But even if some workers are returning, a trend line is very clear: Hybrid work is here to stay.
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“When we looked at innovative companies in 2016, we found that innovative workers spent about 3.5 days a week or less in the office,” said Annie Bergeron, director and design director at Gensler Toronto. “So the data already showed that four or five years ago. “
In the UK, “it’s fair to say we’re in the ‘new normal’ and we see people coming every other day or 50% of the time, typically,” said Neil McLocklin, Partner, Strategy Advisory. EMEA at Knight Frank. “I’m not really aware of companies that force people back to work, but there have been incentives. “
While some workers are eager to return to the office, others are much less so, and in a fiercely competitive job market, many companies are deploying the flexibility of remote or hybrid work to attract potential talent.
“Here in New York, the war for talent is very pronounced,” said Mr. Miscovich. “Tech clients in particular are looking for a localization agnostic strategy in order to engage this talent. Hybridization will happen, new technologies, new ways of working.
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And just like in the residential world, cleanliness and healthy amenities will be crucial for office buildings that hope to be successful.
“There is a flight to quality,” said Durst. “Quality in the sense that it is a healthy and well-maintained environment.
Mr. Durst added: “From what we’ve seen, people want to be in offices, to be able to communicate in person. Even if you’re only there two or three days a week, you still need a place to have an office.
To stay ahead of Airbnb, hotels focus on experiences
Ambivalence about returning to the office cannot be found in the travel and leisure industry, where consumers have enthusiastically embraced post-vaccination travel.
“We see extraordinary dining and leisure travel,” said Ian Schrager, founder of the Ian Schrager company. “Business travel has not returned, but it will be. We suffer from supply line and manpower issues, but other than that I am very optimistic about the hotel business, especially in international gateway cities around the world.
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However, in the face of continued disruption from companies like Airbnb, hotels must stay ahead of the curve to create unique experiences, Mr. Schrager said.
“Airbnb is a threat to the hospitality world, and the industry has denied it from the very beginning,” said Mr. Schrager. “We have to innovate them, be more creative, do things they can do. They cannot create the original experiences that hotels can create.
Before the pandemic, a trend towards more experiential boutique hotels was already well underway.
“Focus on the experience. More leisure, boutique, glamping, container hotels where people have their own private space, ”said Davonne Reaves, CEO of The Vonne Group. “It’s a different kind of hotel.
Part of the experiential hotel experience will include an emphasis on so-called “pleasure” travel, a blend of business and leisure, and the creation of unique experiences for remote and mobile workers.
“Hotels need to get a feel for the idea they are creating [a situation] where you can have a unique work experience and then stay a little longer and have a unique leisure experience as well, ”said Ms. Reaves. “We’re seeing brands creating shared spaces and workspaces, and they need to do that to bring back group business travel again. “
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Uneven recovery for retail
Traditional retailing was suffering before the pandemic and may well be the commercial real estate sector that will experience the most fragile recovery.
“Retail is a big question mark as to what’s going to happen,” Mr. Durst said. “Rents have come down, we are seeing new businesses start up in places that have been vacated. What is the demand for these tenants and retail businesses, we will need to see over the next six months to a year.
However, the picture is not entirely negative. Shoppers have returned to stores in person, previously online-only businesses are carving out brick-and-mortar spaces and some luxury retailers are seeing more activity than ever before, Litt said.
“If you look at the pedestrian traffic in malls and malls, it’s almost a throwback to the pre-pandemic period,” Litt said. “E-commerce is booming and there will be losers in this equation, but it’s fascinating to see how many people have returned to the stores. I’m not backing up the truck to buy commercial real estate, but it’s a lot healthier than we thought. “