17 December 2020/ rent_office_guide

Top 5 Trends in Commercial Real Estate in 2020

2020 has been a tricky year for the commercial real estate (CRE) industry. Office-based companies have switched to remote working, with some even making the permanent shift to keep overheads down. A greater reliance on digital technology has also put pressure on the connectivity and power capabilities of office spaces. Commercial landlords have even had to consider changing the entire layout of their properties and enlisting the services of specialist cleaners to make sure their office spaces are safe and compliant.

While it looks as though the end is in sight for the pandemic, Covid-19 has made many businesses permanently re-evaluate what they want and need from their offices. It has brought existing trends to the forefront, such as the decline of the high street in retail, putting extra pressure on CRE

We’ve put together a list of the top trends that have dominated the CRE sector in 2020 and what they could mean for its future.

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1. The shift to virtual working

Undoubtedly, the trend that has dominated 2020 is the shift to virtual solutions in almost every area of our lives. Many businesses have had to undergo a significant digital transformation this year, due to challenges like accessing central servers remotely, shifting digital working practices and staying connected.

Research by Deloitte revealed that 56% of companies believe Covid-19 “exposed shortcomings in digital capabilities” and had a significant impact on their planned transformations. But, after overcoming the initial stress of such a big change, lots of companies are keen to keep these digital ways of working in place in the long-term.  

Even as staff return to the office in 2021, many will continue to connect with clients and suppliers in digital ways, avoiding the time, financial and environmental pressures of in-person meetings. The challenge for CRE landlords will be making sure their properties can cope with increased pressure on key utilities like electricity and internet bandwidth.

As Matthew Field of property development company TMG Partners put it,

“What’s happening with COVID can be seen as ‘the Great Acceleration,’ accelerating things that were already at play before March.”

2. Increased demand for better tech solutions

CRE tenants are now looking for increased smart solutions within their office, leisure, and retail properties. Amenities that were once considered added perks, like super-fast broadband and IoT (Internet of Things) appliances, are now essentials that new tenants will expect to see. Smart ways to manage appliances and energy use, such as apps that can control lighting, heating, and air conditioning, are also set to grow in tenant popularity as office spaces are used more flexibly.

Another area of increasing importance for both property owners and occupiers is ensuring cybersecurity and data privacy is prioritised. For example, if a co-working space captures data from its occupants, it needs to make sure this information is handled in a GDPR-compliant way to keep it secure.

3. Flexible leases

Inflexible long leases have been cited as contributing factors in the demise of British high street giants Debenhams and Arcadia Group. And across the sector, it seems greater flexibility in lease terms is going to be a key area for adaptation for CRE agents and landlords in the future.

Not every sector has been decimated by Covid-19. In fact, in the tech-focused offshoots of traditional industry, such as FinTech, HealthTech and home fitness, some businesses have seen their workload and customer numbers go through the roof. As a result, these new, highly profitable companies are looking for a permanent yet flexible base.

On the other hand, companies in hard-hit sectors, such as travel and leisure, have been struggling to cover the costs of their leases. Many larger companies also are simply not using their offices right now, or plan to use them only two or three days per week going forwards, presenting new and exciting opportunities for them to sublet their space.

Matt Weirich, of property-touring platform Realync, explained:

“Younger companies that are doing well are looking for flexible space and terms, so subleasing might be the top CRE trend.”

Even companies that have fared relatively well during the crisis are looking into more flexible lease terms for their CRE space. A permanent home that a company uses five days a week is no longer as appealing to a new generation of flexible workers. If CRE landlords want to make sure their properties remain occupied, it’s clear they’ll need to consider flexible or part-time lease agreements in the future.

4. A new approach to client management

Commercial real estate agents have also had to get on board with digital ways of doing business due to Covid-19 restrictions. With in-person property viewings off the table, many introduced virtual property tours so they could continue working safely with customers. Lots of agents have also had to manage client relationships differently, chatting to tenants and landlords via phone, email, or video calls in place of in-person catch-ups.

These changes have been positive in many ways. Now, potential tenants or buyers can look around their chosen property without setting foot in the building, thanks to 360-degree or even VR video tours. Other new technology, as highlighted by justcoded.com, can even allow them to add furniture and explore different room layouts to make sure the property is right without the need for in-person viewings.

In the future, it seems these new solutions are likely to stay. Time-poor tenants can view new properties with ease, giving them greater confidence in sealing the deal virtually. And busy agents and landlords can cut down on travelling time, allowing them more hours interacting with valued clients and tenants instead of stuck in traffic jams.

5. Local hubs

In years gone by, much of a town or city’s office-based workers were clustered into one, often central, area. Even in a sprawling metropolis like London, much of the working week’s activity was focused around several key areas. As a result, retail, food and drink, and leisure businesses were able to set up in these areas, confident they would enjoy a steady stream of customers from the offices all around.

Now, with office workers scattered to the four winds, these central businesses have experienced a significant drop in customer numbers. While it’s undoubtedly an unfortunate consequence of the pandemic, it has presented new opportunities for the CRE world.

A poll by TLT solicitors found that 69% of business owners believe the creation of local retail and office hubs could be a great way to accommodate long-term flexible working. Out-of-town CRE property owners may be able to charge premium rents for their previously less desirable properties, offsetting potentially reduced rents from central premises.

And, with greater numbers of people within suburban communities, there could be exciting new opportunities for restaurants, cafés, and retail stores to set up profitable locations outside of exclusive central hubs.

Adapting for the future

It’s clear that the theme of 2020 in the CRE world has been adaptation in the face of extreme challenges. If property owners and agents want to make sure the future is bright, they’ll need to get on board with changing customer demands. Failing to adjust their offering could mean they’re stuck with empty properties and struggling investments that sour from an asset to a burden.

Deloitte explained:“As monumental as 2020 has been, 2021 could be even more so; the critical decisions and investments leaders make now could come to fruition over the next 12 months.”

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