What work-from-home means for commercial real estate

16 June 2020

In the recent past, the large and good-looking office was the indicator of the prestige and success rate of the company. Things have changed and the traditional model of work in the corporate headquarters gives way to telecommuting and the other forms of flexible job opportunities. The brokers have to adapt to the needs of the companies and new realities.  

Change in the concept of modern office

Social and economic trends that were in force for many years are now changing the way we think about the modern office. This is a great challenge for commercial brokers but at the same time, these changes result in new opportunities. 

The tendency has emerged in the year 1973 when the gridlock and OPEC oil crisis led to the standstill period in the USA. Along with these events, the idea of bringing hundreds of workers into the corporate headquarters every day did not prove beneficial.

In the same year on the east coast of the USA, the world’s tallest building has opened. This was the World Trade Center, the office complex with an area of 1.24 million m2.

On the west coast, Jack Nilles, the former engineer of NASA was developing the new revolutionary trend that would turn the idea of building large office complexes like the World Trade Center into an outdated case. The new concept was called ‘telecommuting’ and took place in the middle of an energy crisis. Jack Nilles’ idea was to create the network of the offices that would be located close to the people’s homes to make the commuting to the place of work more convenient.

Nowadays due to modern technologies, the concept of ‘telecommuting’ may become a reality for millions of people. About 54% of employees around the world are now working remotely for half of a week. 

While the cities are growing in popularity, the common patterns of work have also transformed. The same transformation has happened to the strategies of commercial brokering. 

How telecommuting became a reality

What work-from-home means for commercial real estate 1
How telecommuting became a reality

Despite the occurrence of telecommuting on the background of the OPEC energy crisis, the other reason for the increased popularity of the remote job was the work and life balance. 

The stereotype of a telecommuter typically looks like a freelancer of young age who works from the coffeehouse. However, according to the research, a typical home-worker is a man or woman aged 49 who works in a large company with more than 100 workers. 

The number of telecommuters is growing from year to year. The percentage of remote workers is now more than half of the whole number of employees. For instance, in the USA this is about 56%, in South Africa, this percentage is about 52% and about 60% – in Argentina. 

With the emergence of new technologies, remote working has become more affordable and accessible. About 54% of employees are working remotely from time to time and about 70% of people consider flexible working arrangements as the essential points. Also, people say that their productivity has increased significantly when they started working away from the office.

These trends influenced the demand for office spaces and the way companies perceive the office buildings. So, the business of leasing out the office space will be highly affected by emerging trends. 

The needs of the companies 

According to the studies by Professor of Real Estate Finance, Norm Miller who teaches at San Diego University, the popularity of the office spaces has decreased since 2000. The major reason is financial pressure. The companies tend to choose cheaper, smaller, and more flexible offices than before. 

Google Headquarter
Google Headquarter

Norm Miller studied the 54 largest markets in the USA and found out that the peak of the popularity of office space was in 2009 and then dropped by 50%. In the year 2013, the new leases comprised just 17m2 per person. After the Great Recession in 2008, the price of rent has increased and the companies started looking for ways to save money.

The trend continued between 2013 and 2016 when the density of office space per worker decreased. This is a long-term tendency which took place since 1990. Moreover, the trend is observed not only in the USA but also in Asia and Europe where the price of office spaces is usually more expensive compared to the United States. 

In London, the landscape of the city is influenced by the changes in work-life balance. The office space is reducing during the six months. This is the greatest decline in office space since 1990. In Westminster, the office space of 409,000 square meters was transformed into residential real estate. 

Although the global tendency for telecommuting, some companies prefer to stick to the traditional modes of work in the office. This is particularly true for the technology industry. For instance, Google spent about $1.9 billion to purchase the block in New York City. Apple is building the corporate headquarters with 260,000 square meters of space in California. A similar practice was applied by Yahoo! when the CEO of the company Marissa Mayer banned remote work to encourage the employees for greater collaboration.

However, the overall trend is the shift from the traditional forms of work in the office to telecommuting. The brokers will be signing less traditional office agreements or investing more time and money to conduct the larger amount of small deals instead of the large one as it used to be. The solution is to change their models of work and adapt to the new realities dictated by the business and real estate market. 

The employees’ needs

The businesses also experience the need to provide more opportunities for flexible work to the employees who strive for improving work-life balance. 

The demand for more flexible work is based on many reasons including time and energy spent on commuting and also happiness and health. According to the studies, about 20% of employees were thinking of changing their jobs due to a large amount of time needed for commuting. About 27% of people consider their commute as the damage to productivity. 

Long commutes and large distances from work usually have a negative impact on the workers’ health resulting in the lack of sleep, obesity, a higher level of stress, back or neck pain. That is why employers cannot ignore the problems associated with the long commutes if they care about the health of their staff. 

The research confirms these conclusions. About 61% of employees are capable of changing the job in favor of another position with flexible working opportunities. 93% of people would prefer a company with a remote work opportunity over the company that does not have one. 

The opportunity to work from home rarely solves the problem. The companies are banning flexible work opportunities because they understand the importance of collaboration which takes place between the employees in the office. The employees who are working from home say that the lack of a team environment and communication with co-workers is the most difficult thing about working from home. 

Due to the abovementioned aspects of both traditional work models and telecommuting, workers and employers need to find a solution that will satisfy the demands of both sides. While the long commute to the corporate headquarters is a waste of time and energy, working from home lacks the professionalism and the team spirit. 

So, we need a solution that will be suitable for both parties. This is an exciting opportunity for changes in the real estate market. 

The future of the office is flexibility 

The corporate headquarters is now the outdated way of working. The brokers need to focus on modern solutions providing flexible workspace for businesses. 

The future of the office is flexibility
The future of the office is flexibility 

The brokers may offer various places for work located worldwide for a full-time or part-time job. These can be satellite offices that would be located near residential areas. This is a great offer for companies because it allows them to meet the financial goals without the need to sign the long-term lease. Also, this approach will be beneficial for employees who strive for an inspiring place of job where they will have a feeling of community and be able to share their ideas with their colleagues. 

This new brokering approach is profitable for the brokers because it tackles the challenges of the future providing the guarantees that the workers will return for the workplace. This method also provides more advantages compared to traditional office deals.

One of the major advantages is the ability to save time for closing deals. The leases are flexible and there is no commitment of capital expenditure. Due to this reason, the brokers will receive better cash flow. Instead of the commission for the number of years of the lease, the brokers would receive 10% on all completed agreements. Thus, instead of the need for concluding a large amount of smaller deals, the real estate business will transform into something better. 

Conclusion

The traditional office deals are no longer relevant due to the long-term trends in the real estate market. The brokers’ strategies need to consider that the companies are looking for ways of saving costs on the lease of the office space. 

The employees do not like the work in the traditional office but they are not satisfied with working from home either. That is why the best solution for them would be the combination of easy accessibility to the professional environment and a short commute. 

The brokers need to focus on selling workspace instead of the offices. To meet the requirements of the companies, brokers need to consider flexible solutions and reinvent the deals.

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