Key Highlights
- Even in 2018, there negative net migration to New York, Los Angeles, and San Francisco while US economy grew +2.9%
- COVID-era office market data offers mixed messages
- Office demand being reshuffled and redistributed between office providers within and between multiple cities
Office market experts are saying that total office demand in the short- and long-term will only “moderately” diminish in central employment centers. Two additional issues deserving of attention are how office demand is being “reshuffled” and “redistributed” among and between both established and newer employment centers and what those office providers will have to do to actually remain in the commercial office environment.
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One thing already happening is that many companies are renewing their existing leases BUT for shorter periods of time as the “new” normal evolves, according to JLL, a real estate consultancy. Additionally, JLL predicts that office activity will not disappear into homes or to the cloud.
As in the late 19th century and up to 1930 when America had mixed land uses within its central employment centers, we may soon see that a “…significant percentage of office space will be repurposed into housing, e-commerce fulfillment centers, delivery-only kitchens, health care centers, meeting spaces, event spaces and other uses,” according to Dror Poleg, author of Rethinking Real Estate and co-chair of the Urban Land Institute’s Technology and Innovation Council in New York.
In residential areas, storefront retail shops and hotels may have to make room for more daytime workers. (Avalon Bay Communities and Equity Residential, the country’s largest multifamily operator, has already been allocating work and meeting spaces within their residential buildings for some time.)
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Common, the country’s largest co-living operator, is now partnering with local governments to develop live/work communities. Hospitality brands such as hotels and coffee shops are experimenting with converting shop spaces and hotel floors into workspaces that can be rented by the hour/day/week/month. And local governments are looking to redistribute jobs/services across and among residential neighborhoods.
Large employers may maintain their respective central headquarters while simultaneously offering their employees satellite workspaces in suburbs of those headquarter cities.
Poleg believes that office spaces may become consumer products, forced to both fight for and meet the needs of its customers. Just as every consumer product must focus on the needs of its customers, or in this case its individual employees, offices may be forces to provide task-specific spaces to accommodate employees doing specific tasks such as research and development brainstorming, client presentations, employee training, group meetings, etc.
In this new mid- and post-COVID era of worker choice, Poleg believes the “transformation of the office market” will be faster than the two decades it took for less than 12% of all retail activity to move online while concurrently increasing sales. Poleg also believes the commercial office industry is “far less prepared” for disruption than the retail industry was and still, the retail industry has experienced apocalyptic closings of tens of thousands of stores and multiple bankruptcies.
Hopefully, proactive, creative thinking and partnerships among multiple industries being devastated by COVID impacts will save the commercial market industry from its own apocalypse.
Thanks to Dror Poleg writing for The New York Times.
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