WFH’s Impact on CRE
by Micah Loeb, Broker Associate with The Colorado Group, Inc.
The rise of the work-from-home (WFH) environment has played a significant role in shaping the future of the Commercial Real Estate industry. In this blog post, we will explore the current state of the commercial real estate market in relation to the WFH trend and its potential long-term impact on the industry.
The Rise of WFH
The pandemic forced many businesses to adopt a WFH model to ensure continuity and safety. This shift has led to a dramatic reduction in office occupancy rates as many employees have been able to work remotely. In fact, a survey by Gartner revealed that 82% of company leaders plan to allow their employees to work remotely at least some of the time, even after the pandemic is over.
This trend has significant implications for the commercial real estate market. As companies downsize, demand for office space is decreasing. This is leading to a drop in rental rates and an increase in vacancy rates, particularly in urban areas where office space is at a premium.
Current WFH environment
The current WFH environment is constantly shifting. Large companies such as Google, Microsoft, and Twitter are trying to lead the charge and renormalize working from the office (or, as the kids call it, WFO). While smaller start-ups, along with the younger generation are continuing to push for the WFH model. Google’s goal is to eventually scrap the WFH model entirely by first switching to a hybrid model requiring its Cloud-based employees to come into the office at least two days a week. However, those employees will most likely find themselves sharing a desk with a fellow Googler as Google is trying to take this opportunity to cut costs and reduce its overall real estate footprint.
How does this relate to Boulder specifically? We have seen a dramatic increase in downtown office vacancies and a large influx of subleases and broker incentives. While property owners are optimistic that the pre-pandemic WFO strategy will come back into style, the market has yet to prove it. However, not all is doom and gloom. If nothing else, the COVID-19 pandemic proved that you couldn’t put a six-ton lathe in your home office, and therefore the industrial market is as active as ever.
Potential Long-Term Impact
The long-term impact of the WFH trend on the commercial real estate market is still unclear. While some experts predict that the trend will eventually fade, others believe that WFH is here to stay. If the latter is true, the commercial real estate market will significantly transform in the coming years.
One potential outcome is a shift towards flexible office spaces. For example, with more employees working remotely, there may be greater demand for short-term office leases and co-working spaces. This would allow companies to have a physical presence while saving money on rent and other expenses associated with traditional office spaces.
Another potential outcome is a change in how office spaces are designed. With fewer employees working in the office, there may be less need for large, open-plan offices. Instead, companies may opt for smaller, more intimate spaces better suited for collaboration and teamwork.
As demand for office space decreases, rental rates are dropping, and vacancy rates are increasing. This trend is expected to continue in the short term, but the long-term impact is still unclear.
While the decline in demand for office space is a concern for the commercial real estate industry, it is also an opportunity for innovation. As companies look for ways to reduce costs and adapt to the new normal, the industry may see a shift towards flexible office spaces and new office designs.
Ultimately, the future of the commercial real estate market will depend on a variety of factors, including the duration of the WFH trend, the development of new technologies, and the overall state of the economy. However, one thing is clear; the industry juggernauts want the WFH trend to end sooner than later, while their employees prefer to keep it in place.