Thank you to our panelists Gay Coronation with NAR (National Association of REALTORS), Matt Dorner with BID #21, Greg Schementi with Cushman & Wakefield and Heather Turner Loth with EUA for their insightful conversation on Urban & Suburban Commercial Real Estate and how the commercial real estate decision process is evolving.
The disruption caused by Covid-19 has had impact on all sectors of commercial real estate – retail, industrial and office. The office real estate market is one that, over the past few years, in Milwaukee, has experienced tremendous growth and development. At the same time, the suburban market, which has been traditionally strong, has seen its share of changes and development as well. At the core, we know that this disruption has forced office users to do something they never thought possible – operating with a remote workforce. Now decision makers are left to decide how they grapple with the learnings from this ‘experiment’ as they renegotiate office leases, make plans for expansions or relocations, or entirely re-evaluate their business and operations model. Nationally, we have seen Amazon double down on its need for office space across six markets and we have seen REI, which just built a brand new corporate headquarters in Seattle, put the building up for sale siting a shift to a hub and spoke model for employees. There seems to be no one size fits all approach.
Here are a few key highlights from the discussion.
- According to Gay Coronation with NAR, the market is definitely seeing a “wait and see” approach when it comes to the “work from home impact”. National leasing volume is down 50-75%. Rents have not fallen the same way that volume has been impacted. Investment volumes are also down by 75%.
- Different locations/geographies have their own reaction based on the severity of the initial impact of COVID. Impacts seem to be more immediate and greater in larger, denser markets like New York, San Francisco and Chicago.
- According to Greg Schementi with Cushman & Wakefield, the Industrial sector is going strong and office is taking the brunt of the hit. Corporations are putting decisions on hold and short-term renewals are up in order for people to buy time especially if their business has been impacted by COVID. Corporations are not thinking about this passively but pushing dates into the future as they determine other significant decisions.
- Is Milwaukee different than other larger cities? Yes, according to Matt Dorner with Bid #21, Milwaukee is seeing some of the same things that larger cities are seeing. However, they may be able to bounce back a little quicker than some of the larger cities. One third of the workforce as already returned to the downtown environment. Larger cities are seeing less. Transit & transportation plays a big role in larger cities. Smaller cities will likely have a quicker bounce back as the reliance on mass transit is not as big.
- When determining whether or not to bring staff back to work in the office there are many factors that come into play, travel time is a large part of it. Does it save time for the employee, does it save money for the employer? In larger cities, people were forced to live outside of the city because housing was more affordable. This isn’t necessarily the case in Milwaukee. Milwaukee has the competitive advantage that it is “15 minutes to everywhere”. It is also important to consider is how are employers responding to the needs of the employee. If kids can’t go back to school, what happens? This will likely pressure employers to allow people to work from home.
- In 2019, recruiting and retaining talent drove all real estate and office design decisions. Talent is still at the core of the conversations, but now how do you engage and retain employees in a more transactional environment? The big question is will that drive office decisions as real estate is a huge piece of the equation for companies.
- What trend was accelerated? The choice and control around employee engagement. Pushed the “where can I do my work best” motto forward. For some people it is from home, others are dying to get back to the office. Post COVID, the flexible work environment is probably even more popular.
- Measuring productivity, are the numbers still there when people work from home? Will it make business leaders think differently about who they need? Building trust leads to innovation, but time will tell as we continue to analyze productivity.
- According to Greg, short term sub lease activity in Central Business Districts are way up.
- How are people making decisions? Cost is a huge factor especially if there was an impact to their business due to COVID. Most companies have realized they do not need as much real estate as they originally thought. Talent also plays into it, the people who need more interaction & collaboration are more likely to go back to working in an office. Management of professional employees needs work if people continue to work from home and stay distributed.
- As more people move to the suburbs, there will be a look at the suburban office market. However, it depends on the type of company, what they are trying to achieve and where their talent comes from. The idea of “free address” office space may be a compromise to needing less space but still providing an opportunity for people to interact.
- Due to the wait and see approach and short-term lease renewals there will be A LOT of lease expiration dates in our future. These will likely pile up due to leases being pushed into 20-21. Other real estate and planning decisions will also create a back-log and a lot of advisory opportunities in the near future.
- C-Suite decisions are becoming ever more important. It is no longer just the CEO, but the Chief Human Resource Office and Chief Technology Officers have an equally important role. This focuses on the balance between people, place and technology.
- Lease rates will likely decrease in the future as real estate decisions are made coming out of COVID – with the shift to ‘work from home’ thinking at least as part of the workforce solution, supply and demand forces are at play.
- Newer buildings and assets with updated HVAC and surfaces may have a competitive benefit as there is a focus on sanitization.
- The culture, mission and vision of a company is important. What expectations do the clients have of the company?
- Flexibility is the wave of the future. This is a chance to prove that business can be effective in non-traditional ways.
- Milwaukee is well-positioned to recover more quickly from disruptions because of the unique aspects of the region’s suburban and downtown real estate markets including inventory, accessibility, proximity to talent and quality of product.
View the full video HERE