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What Commercial Real Estate Leaders Need To Know About The Hybrid Work Era

By News Creatives Authors , in Real Estate , at July 19, 2021

Kenny Kane is the Chief Operating Officer at Firmspace

A string of major companies have recently taken the bet that hybrid work is here to stay: Apple and Deutsche Bank unveiled plans to implement a hybrid in-office and at-home work policy this fall, and JP Morgan’s chairman and chief executive estimates that the company may only need 60 seats for every 100 employees.

While most of these plans involve downsizing real estate footprints, the dawn of the hybrid work era doesn’t necessarily bode poorly for the commercial real estate industry. As companies test the viability of this model for their business, commercial real estate leaders have an opportunity to attract new tenants by investing in new paradigms of work.

Hybrid Models Won’t Work For Everyone

For some companies, hybrid work may turn out to be a managerial nightmare. And those companies may pivot back toward a traditional in-office model after a trial period.

Consider the logistical implications of hybrid work for large to midsize companies: tracking individual employees’ remote days, coordinating in-office team meetings, hosting video calls with employees across time zones. Then there’s hybrid work’s potential toll on culture and productivity if remote workers feel isolated from in-office employees. While large companies like Apple have the resources to weather the complications of this transition, many may struggle to find a system that makes the most of their employees’ time and resources.

Even if companies announce plans to be hybrid or majority remote in 2021, that could very well change in 2022 and beyond.

Shared Downtown Office Spaces Provide A Strategic Hub For Companies In Complementary Industries

If a company decides it needs more office space than estimated in return-to-office plans, it likely won’t completely abandon the flexibility and smaller scale of hybrid office models altogether. Commercial real estate leaders should keep their eyes on a new iteration of coworking for companies looking to downsize: shared office spaces with partner companies.

Think of it as a mall, but for business. A central location for similar services has benefits for all stakeholders: shared expenses and more efficient communication between tenants, convenience for customers and full occupancy for real estate investors.

Two financial services companies in St. Louis will test this model by moving into a shared 12,000-square-foot office in August, after renovations are completed. The move, facilitated by JLL, is intended to create an ecosystem of financial planning and insurance experts where clients can conduct multiple consultations in one visit.

This model may make sense for professional services or B2B companies that have similar clientele but don’t directly compete. Plus, these types of companies may be more likely to require the full infrastructure of an in-office environment for security and privacy reasons while still giving some employees the option to work remotely as needed.

Suburban Offices Offer An Option For Employees Who Don’t Want To Commute

Another potential direction of the hybrid work revolution is the expansion of suburban office markets. Suburban commercial real estate is still grappling with record vacancies, but some markets like Minneapolis-St. Paul and Chicago are beginning to see growth.

A smaller office in the suburbs may be able to accommodate those employees who still want to work in a dedicated office space, but without the full commute downtown. Hub-and-spoke office models, or a downtown headquarters plus regional offices where employees live, have been around since long before the pandemic but sparked renewed interest among enterprise companies in 2020.

But the suburban office doesn’t have the qualities that have many employees itching to get back to the office. While more convenient, a suburban office can’t replace the downtown office: premium space in proximity to other businesses, professionals and city life. We’re unlikely to see suburban offices become more than just an option used by only a fraction of a company’s employees.

Employee Health And Safety Remain Paramount In Companies’ Search For New Offices

Commercial real estate leaders shouldn’t just focus on office space size and location while assembling their portfolios to align with the tides of the hybrid work market. The quality of the office itself matters, too. 

As companies consider shared, suburban and full office models to attune to hybrid plans, they’ll look for spaces that will make their employees feel safe and supported in the transition back to in-person work. Those spaces will have comprehensive sanitation protocols, built-in space for social distancing, thorough ventilation and property technology — or “proptech” — to streamline communication within and between tenant companies about traffic flows.

While it remains to be seen exactly how the hybrid work experiment will shake out, investors should be prepared for the rise of these market trends while remaining committed to solutions that keep professionals safe as they return to the office.

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