What To Expect From Houston’s Commercial Real Estate Market Post COVID-19
By Chris Lewis, Managing Principal, Lee & Associates – Houston
Covid-19 has shown the world the necessity of socialization and human interaction in the workplace. Societies built on collaboration now must question the layout of workplace environment. Interaction amongst people (for most)] is necessary and working from home indefinitely isn’t a true long-term reality.
While many companies can stagger shifts and offer flexible schedules with today’s technology, how will this new normal affect shared workspaces and shared common area amenities? What is certain is that everything will change, but the question is how much? And, the decisions made today will affect the operational functionality of tomorrow’s tenant.
As the economy takes a pause for the short-term to readjust, owners will have to rethink their long-term plans and listen to consumers. Strategies of “benching, hot desks, hoteling” focusing on dense-work-environments may be a lost trend in design; at least for now. If you had 35 square feet to yourself before, this will translate to 70 square feet so operators can act responsibly amongst new social distancing guidelines.
Density will exist, but it will appear different often with this “six foot of separation” rule implied in every facet of the workplace. This will include circulation factors (typically 30%) that may now trend upwards of 40% or more. Spaces may be larger, more open, but this doesn’t necessarily mean that everyone will expand their office spaces going forward.
Employers and employees have determined that they can work remotely via online video platforms, so this initiates a new discussion on “right-sizing” the office. While distractions in the home exist, productivity is still high enough to consider a long-term strategy where only the key essential employees come to the office. Tenant’s space needs will run the gamut and will be driven solely by culture, operational functionality, and business drivers as to whether inner office socialization and collaboration is a necessity, or just a luxury.
CRE of tomorrow
In Houston, the trend “flight to quality” has been the discussion point for the past few years. This means that as an employer, you’ll will overpay 15-20% for your office rent in order to stay in line with your competitors to offer amenities that focus on a live-work-play workplace. This usually comes with the concept to densify your space to offset your increased rental costs.
With the necessity to now “distance,” it’s likely that there will be a “flight to lower-priced alternatives.” More space, lower cost. Opportunities in this arena will exist that didn’t before, including vast subleasing opportunities due to energy/oil companies downsizing due to today’s oil price. With Covid-19 and an economy that is one-third driven by energy, this will create an environment where landlords will have to reinvent themselves in order to attract the tenant of tomorrow due to vast competition.
And another consideration, as spaces are redesigned to accommodate a Covid-19 workplace, will this translate into longer term effects of how we conduct business? You bet. Most leases are five years on average, so if you imply a higher circulation and less dense workplace, you are stuck with this model for the lease term. Implementing operational changes that include a work-from-home strategy now, may be a more permanent long-term decision that employers must account for. Designing flexibility to the office footprint for the future should be considered.
In addition, buildings, landlords, and tenants will have to operate differently, as safety and health of the worker will be the focal point more than it ever has before. The landlords that engage in precautionary measures to protect their tenants will ultimately win on tenant attraction/retention in the long run, as this will now become a marketing differentiator in building selection.
So what does the CRE consumer of tomorrow look like and how do owners navigate through what appears to be confusing market conditions? Look to the consumer behavior and adapt to it. Technology is your friend, and investment now will pay-off in the long run. A virtual tour is now a necessity for every listing. Closings will be online. Space-plans may reflect larger footprints on one hand but might also reflect space reduction due to half the workforce working remotely.
For tenants, employers will have to take a deep look at their culture and determine a flexible office footprint for functionality. Landlords that embrace a repositioning of their assets in an environment that is catered to that post Covid-19 consumer is key to leasing the space, including health safety measures focusing on the health of the individual more than ever before.
These challenges are ones we have seen before and having experienced advisors to help navigate through these challenges is more important now than it’s ever been. We’ll get through it as we always do, but things will look different. Anticipation, preparation, and intelligent strategies to position assets and office spaces for the flexibility of the consumer and employee is key to longevity in an environment where the risk is still undetermined.
Lee & Associates – Houston is a fully-integrated, commercial real estate company. Our business-minded brokers specialize in office, industrial and land real estate investments. As the fastest-growing, broker-owned firm in the nation, we are uniquely qualified to support our clients’ needs in the local, national and international markets. To learn more about Lee & Associates – Houston, please visit our website: https://www.lee-associates.com/houston/.
Chris Lewis is a co-managing principal at Lee & Associates – Houston. He specializes in landlord and tenant representation in the office sector of the Houston commercial real estate market. With over 18 years of real estate expertise, coupled with his extensive knowledge in tenant relocation, tenant expansion, lease negotiations, market analysis and property marketing, Chris has proven himself to be highly respected in the brokerage community.