The pandemic caused panic in the real estate market. Suddenly, the rise of remote working threatened to disrupt forever the traditional ‘safe bet’ of a city centre office space. Even now, as the conversation has moved from ‘remote’ to hybrid working in countries that are reaching high rates of fully vaccinated, traditional office spaces have not fully bounced back. The CRBE predicts a fall of approximately a tenth in demand for office space over the next three years. Yet, this is not bad news. Where there is change, there is opportunity. Hybrid working places a greater emphasis on consumer demand - and therefore, a wider range of options to appeal to different segments of the market.
Traditional offices have not fully bounced back
Perhaps the clearest impact of hybrid working on real estate will be shorter leases; the MSCI predicts that leases will be much shorter than the typical five years. This is not only due to consumer demand, but also to allow real estate companies to respond rapidly to changes in the employment market. Those changes are likely to be more impactful, given that the workforce is becoming more mobile. Given that two thirds of lease agreements will end in the next five years, according to MSCI, companies will have to innovate to stay ahead of the curve and avoid getting locked into long-term leases that will quickly fall out of fashion. Whether it is investing in cheaper office real-estate outside the cities, or in smaller, high-end offices, those real estate investors that act now could see significant rewards. There is no doubt that shorter leases signal a major change in the way that real estate works; what 'stable' means in income forecasts will be different and managerial decisions will be more important. Yet, it is also an opportunity for entrepreneurial real estate investors to take advantage of this post-pandemic change - and reap the benefits later on.
Given that hybrid working lends itself to a more consumer-focussed, fast-moving office market, it will change the type of offices currently on the market. One major trend that looks set to take the market by storm is offering healthier, green spaces. A survey conducted by NEXT Energy Technologies Inc. found that the majority of employees would leave their workplace, if issues such as sustainability and health weren't recognised. Employees cited lack of sunlight, inadequate space, as well as not using renewable energy and reliance on single use materials as key concerns in the modern workplace. Some organisations have already responded to these employee concerns, for example, Asana has introduced dedicated wellness zones and a rooftop garden to support employee mental health.
Green office demand will soar
With the CBRE predicting that demand for 'green offices' is going to be a key driver in differences between primary and secondary office property, real estate investors will likely be considering how to make their spaces more sustainable to appeal to this employee demand. Yet, given that many hybrid organisations give their employees the choice of which ‘third space’ offices they use, the ‘green trend’ has a wider significance. Firstly, it indicates that those selling office spaces will need to consider the consumer desires of not only the C-Suite of hybrid organisations, but also their hybrid-working employees. Secondly, it points to the ‘green’ commute trend. While cycling to work may not be for everyone (this man in Munich swims to work every day!), shorter journeys of up to 15 minutes can appeal to everyone. In order for that to happen, where office spaces are located will also change.
Offices outside the city centre are more likely to be individually owned and connected to local businesses. For smaller owners, ‘third space’ offices allow them to effectively monetise their spaces and can support remote workers or start-ups in the process, by offering more affordable prices. For the local community, the economic benefits of this can be dramatic - just look at how Tulsa in the US is encouraging remote workers to move to their city. Similarly, the Irish government has set out a ‘Making Remote Work’ Strategy, citing how it will ‘revitalise villages and towns across Ireland’. More simply, local spaces will need the support of other local businesses, from car parking spots, to the local coffee shop, to the cleaners.
'Third spaces' will continue to pop up
Similar to the wider real estate market, individual spaces will be able to differentiate themselves. Across our platform, NearU has seen how ‘third spaces' all have a different ethos behind their work. In Tel Aviv, Panthera is a women-led office space, which aims not only to provide affordable, well-equipped space, but also to put on events designed to create networking opportunities and connect individuals with mentors. In Munich, Velvet Space was designed to be a comfortable, green co-working space, with sustainability at its heart. In Bradford, Bread + Roses is a co-working cafe tailored to encourage creativity and inclusivity. It regularly hosts social enterprise networks, artist and maker events, as well as one-off events with local businesses. At every level of the market, hybrid working will allow organisations and employees to find the spaces that work best for them.
Real estate is not the only market where new opportunities are appearing. Hybrid working will need infrastructure to support it. Take OWL Labs for example, a start-up tech company that produces office equipment specifically designed for a hybrid team. In an article describing the key steps to implementing a hybrid office, OWL Labs argues for changes (after consulting your employees), such as streaming rooms with video conferencing technology, creativity focussed rooms with SMART whiteboards, huddle rooms for smaller hybrid teams and phone booths for 1-on-1 private calls. The need for these facilities will open up a whole new market for tech and installation companies. Moreover, as how space is used most efficiently becomes the focus, designers who specialise in 'Activity Based Workspace design' will be in hot demand. Hybrid work looks set to generate an industry in 'third space' offices, involving real estate companies, individuals making the most of the buildings they own, technology companies, designers and more.