Categories
Real Estate

How Hybrid Working Environment Has Impacted Real Estate Industry

The COVID-19 outbreak and accompanying move to remote work have impacted real estate. Many firms have rethought their physical workspace needs as workers work from home. This has reduced demand for traditional office space and increased demand for co-working spaces.  Some commercial real estate developers have had to focus on residential properties or retrofitting office buildings for hybrid work environments. This comprises specialized workstation locations, social distancing techniques, and increased cleaning processes for in-office and remote workers.  Hybrid work settings have affected real estate development. With the option to operate from anywhere, corporations may seek properties in lower-cost places, changing real estate values and development patterns. 

According to the 2022 Accenture report, 68% of fast-growing companies have adopted a hybrid work model, and more than 83% of employees prefer it. Although the hybrid workplace model has been around for some time, it increasingly became common during the pandemic because of the lockdowns.

Inevitably, the real estate market is changing in response to the evolving trends in office attendance and the widespread belief that hybrid working models are here to stay. Here’s a look at the impact of a hybrid working environment on the real estate industry and how investors can adapt to its changing demands.

Impact of Hybrid Work Models on the Real Estate Industry

Reduced Demand for Office Space

It is no secret that the widespread adoption of hybrid work models has revolutionized the commercial real estate market. According to a report from CBRE, demand for office space fell in September for the fourth month in a row as occupiers delayed lease decisions.

One of the reasons for the decline is evaluations of hybrid working arrangements by companies. Some organizations may also reduce the size of their workspace due to underutilization.

In addition to catering to employees’ interests in working from home, many companies realize they can make substantial savings by minimizing office space.

Reduced Market Value for Commercial Spaces

A working paper by experts at NYU and Columbia warns that the value of commercial real estate across the country could drop by as much as $500 billion from its pre-pandemic level by 2029 if current trends in working from home don’t change.

The locations of both workplaces and residences significantly impact real estate values and development. When there is less demand for office space, the lease income that the building generates decreases, and so does the building’s market value.

That’s a disaster for commercial space owners, equity investors, and lenders and may lead to bankruptcy and foreclosures.

Increased Demand for the Residential Real Estate

After companies started adopting hybrid working environments, many employees considered moving out to the suburbs, rural areas, or smaller towns because of preference and the high cost of living in the city. 

As people no longer commute to and from work daily, there’s no need to live close to a place of employment or a public transportation hub and incur high costs of living. That has led to a dramatic increase in the demand for suburban real estate, which may cause a rise in average prices.

What can Real Estate Investors do?

Low occupancy is costly and may render your office building redundant if you do nothing. That said, you can optimize your property in a few ways to help attract occupants, increase demand, and enhance tenants’ satisfaction.

Repurpose Existing Buildings

Office space is becoming obsolete due to the rising popularity of home office workstations. Overbuilt office buildings in areas where property values are declining, vacancy rates are growing, or places far away from public transit are particularly at risk.

RentCafe believes that in 2020 and 2021, 41% of apartment conversions resulted from previously used office space. Investors whose assets are in this position may find that converting their property into residences is their best choice to avoid foreclosure.

Integrate Home Office in Living Spaces

Recent 1-year estimates from the American Community Survey (ACS) by the Census Bureau show that the number of persons who work from home increased from 5.7% to 17.9% between 2019 and 2021.

The necessity for several home offices to support two or more persons working from home has expanded in recent years. Investors can introduce a home office idea tailored to the specific requirements of people working from home. Adding a space specifically for work can drive up the price of new houses and raise the value of existing ones.

Open Data Centers

Companies used to host their private networks and resources locally. However, companies are recently shifting their IT operations to data centers to reduce the need for expensive commercial real estate while improving their IT assets’ performance, reliability, and cost-effectiveness. 

Further, the need to securely store and share data among employees who spend time in and out of the workplace has prompted businesses to explore new solutions to accommodate mobile workers.

Hybrid work may cause a surge in demand for data centers, which would be good news for investors in the sector. One thing that is certain about cloud, colocation, and managed data centers is that their global relevance will grow with the speeding up of digitalization.

Co-working Spaces

Research and forecasts indicate that the co-working space industry will grow by 11% annually ($13.35 billion) between 2021 and 2025. In reality, not everyone can work from home. To make use of time when they don’t have to be at the office, employees who need to clock in a few days a week of office time may look into renting a shared office. 

After over two years in business, 72% of co-working spaces reported a positive financial return. That bodes well for real estate investors who put money into shared office spaces.

Short-Term Leasing

Landlords rarely signed short-term leases in the past because it was easy to find new tenants prepared to commit to longer terms. The economic situation is not as rosy at the moment. Currently, landlords are eager for any kind of tenant they can get, as many experts believe it will be years before occupancy rates return to pre-pandemic levels.

Companies that wish to keep a physical office presence but are still unsure about their long-term needs often opt for flexible lease terms. You can increase your office space occupancy by providing shorter lease periods, cooperative rates, and adaptable layouts.

Final Word

There is little question that the hybrid working model is here to stay. However, this may not inevitably indicate a sharp downturn in the real estate industry. It is essentially an opportunity for the sector to adapt in response to consumer and market demands. Real estate leaders must conform to the shifting preferences of their customers by offering fresh, cutting-edge products and services.

By Gurpreet Singh Padda, MD, MBA

Categories
Real Estate

9 Things Help Investors Thrive During Real Estate Recessions

There is a concern among many investors in real estate about the possibility of a recession in light of recent economic uncertainties and how that will affect the real estate market.

In most economic downturns, people lose jobs, and mortgage rates typically go higher than most can afford, crippling their ability to purchase properties. But that doesn’t always spell doom for real estate, so here’s a look at how a real estate investor can survive, or even thrive, during a recession.

1. Branding and Marketing

The best way to survive a recession is to keep marketing your brand. It’s about building a brand that stands out from the crowd.

Branding isn’t just about getting customers to recognize your business; it’s about getting customers to keep coming back for more business as you have established yourself as a reputable brand. One of the best ways to achieve this is through positive marketing.

While most businesses would understandably cut down on marketing during an economic downturn, that’s the perfect time to rump up your marketing efforts, as it has healthy returns. For instance, the return on investment (ROI) for email marketing is $36 for every $1 spent. Here’s what you stand to benefit from good marketing and branding:

  • Gaining a larger audience
  • Increased cash flow
  • Help you take some of your competitors’ clients

2. Learn More About the Real Estate Market and the Recession

You need to have a working knowledge of the economy and how it will impact the real estate industry to stand a chance of surviving a recession. Get to know the causes of the recession and where the money is headed.

In a recession, not all economic sectors will slump; some might perform better than others. Use this knowledge to pivot your business to cater to those sectors that are doing better during the downturn.

Take the 2020 recession, for instance: while shopping in malls dipped by 70% and the office industry slumped due to work-from-home initiatives, the booming ecommerce industry led to a steep increase in demand for warehouses.

3. Invest in Technology

Investing in a customer relationship management (CRM) tool during a recession is one of the smartest moves you could make, as it has an average ROI of $8.71 for every dollar spent.

As a real estate brand, you can use CRM to track client information and make follow-ups. A sound CRM system should have features that enable you to access information about potential buyers and sellers easily and communicate with them using various channels. 

Similarly, you can use social media sites and real estate apps to showcase your listings and increase your reach.

Consider technologies such as virtual tours and virtual staging to cut down on costs of staging an open day and staging a listing.

4. Work on Customer Retention of your Current Clientele

Keeping your already existing clients should be a major priority. When you work hard to maintain good relationships with your clients, they’ll appreciate it and return the favor. That makes them feel special goes a long way toward building trust. Try some of these customer service strategies:

  • Maintain a customer feedback loop
  • Provide personalized customer service
  • Start a customer education program
  • Give offers and discounts
  • Provide incentives 

5. Grow your Network

Never underrate the power of networking, as it can help your business stay afloat during recessions. You can build relationships with friends and associates to expand your business’s reach and abilities.

A more extensive network will help in acquiring new business leads, which you can work towards closing to improve sales. Additionally, it will help you keep abreast of the latest trends in the market and identify best practices.

Further, networking will increase your connections and opportunities to explore new markets.

6. Cut Expenses

Tough times call for tough measures. Everyone has to make sacrifices to ensure the firm makes it through an economic downturn, which means cutting costs. Reducing expenses is a brilliant idea even in good times.

Lower your expenditure by eliminating items that don’t offer much to the business, such as a cable subscription in the office. Alternatively, realign your financial spending by reviewing your insurance providers to get a better deal, consolidating bank accounts, and avoiding unnecessary debt.

Improving efficiency will also help in cutting down costs as it minimizes wastage. Purchase the right tools, go paperless, and improve time and project management.

7. Stick to your Business Plan

Economic recession is part and parcel of every business cycle. You don’t need to panic and sell everything. Just stick to your original business plan with just a few adjustments. To stay focused on the big picture, make it a point to refer to your long-term objectives and plans regularly.

Moreover, set short-term weekly and monthly goals, and tweak where necessary as long as they tally with the master plan. You may need to restructure the business plan as recessions can be unpredictable.

8. Re-evaluate the Business

A recession is the perfect time to take a step back and take a long hard look at the business. Since there’s plenty of time on your hands, use the time to evaluate the company and find any weak points that need fixing.

Maybe business is low because you’re not marketing right, your pricing doesn’t make sense, or you don’t understand prospects. Go over your data, try to work where problems are, and implement potential solutions.

9. Create a Unique Value Proposition

Creating a unique value proposition is one of the best ways to thrive in any market. In real estate, this means differentiating yourself from the competition. That means providing something the others don’t offer. 

That could mean anything that offers extras to clients, like diversifying your business by partnering with a mortgage broker, so you offer mortgage provision services in-house.

Final Word

One of the key lessons to surviving a recession is never to stop marketing. That will help build your brand as well as bring in new business. Alternatively, create a unique value proposition, invest in technology, and grow your network to improve sales.

On the other hand, save money by cutting back on expenditure, sticking to the business plan, and retaining your current clients. It also helps to keep abreast of the current economic environment to find opportunities you had not considered before. 

Despite the macroeconomic headwinds of recession, your individual economic success could be amazing, as long  as you can navigate and anticipate this crisis.  What outwardly appears to be chaos may be an historic opportunity.

By Gurpreet Singh Padda, MD, MBA