COVID-19ís Impact on Commercial Real Estate, and Strategies to Recover
For the first time in decades, some office buildings and parking spaces in busy downtown cores are sitting empty. Businesses across the U.S. are adapting their workforces and preparing for the long haul as we continue to grapple with the impact of the pandemic.
At the peak of the pandemic, in April 2020, 66 percent of office workers were working remotely at least part of the week, and 44 percent were working remotely full-time. This has dramatically changed the way cities and downtown cores are configured. With fewer employees commuting to work, building owners must look at alternate revenue streams to weather the effects of the pandemic.
Employees are starting to see the benefits of remote work, including shorter commute times and
flexible work hours.
The Impact on the Industry
At the end of 2019, the commercial real estate industry was in a healthy position. That was before COVID-19. The pandemic was unprecedented, forcing businesses to pivot and respond to protect their workforces and bottom lines. Unsure of how long the stay at home orders would stay in place, many companies closed down their offices permanently, forgoing paying their rent. This put commercial property owners in a tough spot — prime real estate no longer held as much value.
The Future of Work
Long before remote work was the norm, or the necessity, a Harvard study showed that employees who were able to work from anywhere were 4.4 percent more productive. With many businesses seamlessly transitioning to remote work, and an unclear timeline on when this health crisis will end, the future of work is rapidly transforming.
Employees are starting to see the benefits of remote work, including shorter commute times and flexible work hours. Leadership teams are also seeing the benefit, with 55 percent noting that they would extend options for their office workers to work from home at least one day a week after COVID. Remote working, at least part time, will likely stay for the long-term.
Another aspect of work that will likely change due to the pandemic is commuting. During the pandemic, reliance on public transit rapidly fell, as riders began to feel unsafe in crowded and confined spaces. In 2018, when commute times reached their peak, Americans were spending roughly 27 minutes one-way to work.
Now, workers are citing public transit as their top concern about returning to work. The ability to work remotely, at least part time, would reduce reliance on public transit, but so would flexible work hours. If employees could avoid rush hour, they may be less reluctant to use public transit to get to work. The other trend that we may see increase, depending on the length of the commute, is driving or biking to work.
Finding Alternative Revenue Streams
No matter what the future of work looks like, there will be a definitive impact on commercial real estate. Whether businesses are opting to move to a completely remote workforce or a hybrid approach, commercial real estate owners will still be hard pressed to charge the same rents as before.
They’ll also have to make up for income that was lost during the pandemic. Many commercial buildings would benefit from seeking out alternative revenue streams, and for most buildings, the obvious solution already exists.
As the economy slowly opens, more people will be turning to driving to work to avoid public transit. Commercial properties with parking lots can take advantage of this need by renting out their existing parking spaces to these commuters. The key to success will be flexibility.
With fewer employees working at the office full time, many will not want to pay the costs associated with renting parking spots five days a week. As people begin returning to work with so many unknowns — including a possible second wave of the virus, causing another shutdown — they’ll need flexible leases.
This could include space sharing, where commuters only rent spaces for the days that they are in the office. It could also involve more lease options, allowing commuters to choose monthly contracts instead of yearly agreements.
The other option for commercial property owners seeing fewer employees returning to work is to rent spaces to fleet cars. With the travel industry struggling to recover from the pandemic and a 31.7 percent decline in the global car rental business this year, rental cars are sitting unused.
Car rental companies are used to having most of their vehicles on the road, which means that they are left to manage more unused cars.
That’s where businesses with a surplus of spaces in parking garages can help. By storing cars from rental companies and offering discounts and incentives for long-term storage, commercial buildings with capacity can achieve maximum efficiency and get full use out of their parking lots.
Even though we are six months into the pandemic, there are still many unknowns. When will this end, when will we feel safe again and what will the world look like when we emerge? For many industries, the only way to survive will be to adapt to this new normal quickly and plan for the present — not the future.
It is highly unlikely that work models and office spaces will ever be the same, which means that commercial property owners need to start looking at the assets they currently have to generate revenue. Office buildings will likely remain partially empty for a long time, but parking lots can be utilized now to help owners regain lost income.
Jeremy Zuker is the co-founder of WhereiPark. He can be reached at firstname.lastname@example.org.