Memphis Commercial Real Estate Summit: The office is not dead
No commercial real estate sector has escaped the effects of the COVID-19 pandemic. This is especially true for the office. After all, many office buildings in the country’s city centers are largely empty today as many U.S. workers continue to work from home.
When do the workers return to the office? And how many of them will return to their cubicles or corner offices? Nobody knows the answers to these questions.
However, the office specialists who attended the Memphis Commercial Real Estate Summit from REjournals.com and Midwest Real Estate News on December 17, 2020, shared some hopes: they said that while there is still a place for the office sector, there is still a place for the US office after the pandemic ended.
“We will never be 100 percent based in offices across the country,” said Jeb Fields, principal at Cushman & Wakefield | Commercial Advisors in Memphis. “Too much happens in an office environment. You have collaboration and mentoring. They are inspired by ideas we receive through physical interaction. The lack of this is beginning to manifest itself as so many have been out of the office for an extended period of time. The shortcomings in working from home are now showing up in contrast to the first few months we did this. “
Fields wasn’t the only person expressing this feeling. Panelists speaking at the event, led by host Caren Nichol, attorney at Evans’ Petree PC in Memphis, said that every sector but industry is facing challenges today. But the panelists – fields; Shane Soefker, director of Avison Young’s Memphis office; Todd Glidewell, Senior Managing Director, Valbridge Property Advisors, Memphis; and Shan Massey, partner of the Memphis Shopping Center Group, said there is hope: vaccines are now being rolled out across the country. An end to the COVID-19 pandemic finally seems to be in sight.
And that means the healing for the U.S. economy and commercial real estate could begin sometime in 2021.
Fields said there is a lot of uncertainty in the office space today. And that won’t change anytime soon.
“We’re still trying to find out all of this,” he said. “The pandemic hit everyone. It touched every facet of life. Everyone tries to figure out how to get beyond that. The office didn’t fly over the fight. “
Fields said office occupants now face a big decision: should they downsize their office space or extend their leases and stay in their current locations while they wait for the pandemic to burn out?
Fields predicted that many companies will make innovative changes in 2021 and beyond. The way people use offices will change, he said, as many employees work partly at home and partly in the office.
“The big question is how many square feet do these companies need,” Fields said. “How will the demand for office space be in the post-COVID world?”
A big change? Fields said the densification trend – companies moving more people into less office space – is likely to reverse. Many companies will open smaller satellite offices so employees can work in locations closer to where they live. Many will rely on a hybrid model where employees work in an office when they need to meet and collaborate with others, and work from home when they focus on tasks that don’t require this type of collaboration.
“I can speak for our 35 to 45 year olds. They like the ability to bend over, ”Fields said. “They want an office to be available for specific tasks, but they like the flexibility of a remote working option.”
Soefker and Avison Young agreed that the office area will remain viable after the end of the pandemic.
“The office is not dead,” said Soefker. “People liked to explain that early in this pandemic. But that’s just not true. We are entering an exciting new era. Some companies have some form of work-from-home policy. Employees are not always in the office five days a week. These changes only apply to individual organizations, but office space will still be required. “
The changes could match the age of the workers, Soefker said. He cited Avison Young as an example: The younger people at Avison Young would work from home five days a week if they could. Middle-aged workers with children and families? Some days they may prefer to work at home, other days they come to the office. It is often easier for them to get their work done when they have the calm and professionalism of an office environment. Then there are the older, more experienced employees. Soefker said many of them were creatures of habit. You’re used to waking up and going to the office and don’t want to change that routine.
Regardless of the age of the employee, the employees benefit at least temporarily from working in the office, said Soefker.
“There is a strong need for collaboration,” he said. “You can’t replace that. Look at new and younger workers. It is so important that you be around senior brokers and other senior people in business. It reduces the training effort. They absorb things by being close to people with experience. Everyone is now taking the opportunity to rethink their space requirements. Some companies reduce their overheads with uncertainty in business. But when we get into 2021 and the vaccine comes out, people will likely move back to the office. “
Nicol said that she’s longing for people to come back to her office.
“I want everyone back,” said Nicol. “I miss the conversation with the water cooler. I miss this opportunity to exchange ideas. “
Valbridge Property Advisors’ Glidewell said it is difficult to evaluate any type of commercial property, including an office, today. That’s because the real estate market and the real estate economy are so uncertain.
“The more people you talk to, the more opinions you’ll get about how this is all going,” Glidewell said.
However, Glidewell said his company hadn’t seen many rental deferrals or concessions in the office space. He said Valbridge speaks to tenants and homeowners regularly to get a feel for how strong their cash flows are in the short term.
“It’s about getting an overview of what’s going on beyond this pandemic,” Glidewell said. “We don’t see a big increase in cap rates. However, you cannot take cap rates from 2019 sales and apply them to today’s world. “
However, Glidewell said he hadn’t seen any concerns from lenders in the office area. This is mainly because most users keep paying their office rents. The owners he spoke to fail to see that many of their tenants don’t miss out on rental payments, he said.
“For the most part, the office held up,” said Glidewell. “However, we cannot ignore the fact that there is uncertainty. We put this uncertainty into our cap rates. “
Massey of the Shopping Center Group addressed the challenges facing retail, a sector hit particularly hard by COVID-19. However, Massey shared some hopes with his panelists.
From his perspective? Many retailers are struggling today. Others, however, are evolving to better reach customers during the pandemic. This includes restaurants that have improved their delivery and pick-up services and retailers that have improved their curb and online services.
Massey said retailers have moved on for decades. There is always a new threat to retailers and those who succeed accept the need to adapt to these challenges.
“People still love to shop,” said Massey. “COVID has accelerated some of the store closings that we would see anyway. It wasn’t the cause of these closings, but it accelerated them. It’s like Amazon. Amazon didn’t kill retail. Amazon made retailers better. Retailers knew they had to offer a better experience and better service. Many retailers today have moved to the omnichannel approach. So retail isn’t dead. It’s just different. It will evolve. “
Massey said retail space is likely to get smaller. Customers watch TVs in a physical store but don’t walk in the device they choose. Instead, it is delivered to your home.
“You can see this TV. You can feel it and touch it. The seller can talk to you about it. You can buy it, ”said Massey. “But then it will be delivered to your home. Retail was the greatest for industry. All of these fulfillment centers are retailers trying to get that last mile delivery. “