Will the pandemic impact the future of commercial property?

In no small part thanks to the pandemic, the way people work – both how and where – is changing. With different requirements needed from office buildings, how will the commercial property market weather these changes?

A changing reality

While the commercial property market took a massive hit at the start of the pandemic, it has been seeing a swift recovery since restrictions were lifted. Commercial property specialist CBRE said in a recent report that in the last two months the market has been “phenomenally busy”.

With the world opening up again, expectations about office space and the requirement to be in the office are changing. While the move to a hybrid model – where employees work part of the week in the office, and the rest remotely – may make it seem that companies will require less physical space, it hasn’t quite played out like that in reality.

Brian O’Callaghan, partner, real estate, William Fry, says that the pandemic hasn’t impacted the commercial property market in any material way. The amount of space required isn’t any different, he says, but what companies are looking for has changed.

“There has been a shift in how occupiers view the office and there is an expectation they won’t have all staff in the office all the time. Office space is now being repurposed and refitted so that there is much more collaboration and customer-facing space,” he says.

“Rather than having distinct and separate teams occupying the office at any one time, occupiers are looking for the capacity to have the option to have all of the office in the building at the one time, whether for social or business reasons. There is a renewed focus on amenities and what the office can offer to staff to encourage them to undertake their commute to work.”

Mairead Finlay, associate partner and head of real estate, EY Law Ireland, agrees. “Depending on the type of business, as well as the appetite of company decision-makers to alter their workplace practices going forward, the changes we have seen over the course of the last 19 months are potentially here to stay, albeit altered from an almost full-time working from home [WFH] model during the height of the lockdowns to an ever-evolving hybrid model, with employees splitting their time between in office days and WFH to varying degrees.”

The impact on office spaces

While Covid-19 rules currently mean that fewer people can access an office at any one time, it doesn’t necessarily mean smaller or even larger offices are required. Density is only one factor for employers, says Finlay. “Other factors include changes to how existing office spaces are used, for example where a company decides to ‘go hybrid’.

“A hybrid model could mean using the same space, but with fewer individual desks operated on a rotational basis and the introduction of more collaborative space.”

O’Callaghan believes that change is here to stay with “occupiers making decisions now based on lease commitments of 10-15 years”.

Finlay isn’t so sure, saying that it’s hard to predict if the changes seen will continue long-term. “For now, the new reality of the commercial property market is still unknown but what we do know is that it will be a combination of factors that determines the commercial property size and needs of an organisation post-Covid.”

However, she believes that the pandemic ending won’t “necessarily mean an end to the desire of employees to work more flexibly, and that employers will change any move they make towards a hybrid working model.”

Other types of property affected

It’s not only offices that have been affected and will continue to be affected by the pandemic. “Commercial property” comprises a wide range of businesses including retail, hospitality and logistics. Retail, in particular, suffered throughout lockdown and as shoppers pivoted to online and are likely to stay there, these businesses will need to adapt to survive.

“The full effect of the rise in popularity of online shopping on the retail sector is yet to be seen, however it’s arguable that this greater shift to online shopping, and indeed shopping more locally, is set to stay,” says Finlay.

“Meanwhile, retailers who are located in our urban centres, may look to occupy buildings within cities as “display-only” units for customers to view and order the goods in the physical store but then have them delivered to their homes.”

Other potential impacts

Covid regulations and lockdowns aren’t the only ways employers’ commercial property needs could be affected in the future. Now that employees have had a taste of working remotely and it’s clear companies can facilitate it, it’s become an important requirement to many employees. Employers that don’t offer remote or hybrid options could affect their talent acquisition and retention.

Finlay says that in an increasingly competitive jobs market, those companies “willing to embrace flexible working arrangements and to support employees to split their time between the office and working from home will likely improve their ability to attract and retain talent who are increasingly seeking out this flexibility”.

However, it’s important to balance client requirements alongside those of the employees.

“As the pandemic evolves, employers will need to continually assess the viability of their working practices through the lens of client satisfaction with the hybrid work model; development and wellbeing of staff; and the productivity of employees in a post-pandemic world,” says Finlay.