Tenant representation in this brave new world

Tenant representation in this brave new world: A brief history of the pandemic office market

In his dystopian fictional social science novel, Brave New World, published in 1932, British author Aldous Huxley shared his nightmarish vision of the future as he explored social and political structures he expected to evolve from the early 20th century to the year 2540. Twenty-six years later, Huxley published a series of essays titled Brave New World Revisited, which was an accelerated vision of the future based in no small measure on the rapid advances in technology experienced since the publication of Brave New World in 1932.

Today, more than ever, we are reminded of the impact of technology on our daily lives and on the workplace environment. Overshadowing the importance of technology, however, the COVID-19 pandemic has turned our world upside down, forcing us to rethink our vision of the future as it relates to the traditional office workplace.

In an attempt to better explain where tenants find themselves today in regard to the office sector of commercial real estate, let’s focus on three distinct periods of time: before the pandemic; during the pandemic and after the pandemic.

Office market: before the pandemic

Throughout 2019, the U.S. economy seemed to be on autopilot. Economic growth persisted following the Great Recession. Unemployment levels reached historic lows, wages were steadily improving, the U.S. had achieved energy independence (according to some definitions), consumer confidence was high, inflation was modest, interest rates were at historic lows and retail sales were strong.

Pre-pandemic, employers were relocating to the city center, where the knowledge workforce preferred to live and work. Tenants were re-engineering their space, focused on densification, hoteling, flexible work schedules, systems furniture designs, standardization of private offices, collaborative spaces and enhanced employee amenities. The goal appeared to be putting more people in less space while, at the same time, using the built environment as a recruiting tool to attract the best and brightest talent.

Office market: during the pandemic

The dawn of 2020 brought with it the trauma of COVID-19, impacting the entire globe. By March 2020, the virus had gripped the U.S. as infections spread rapidly. Masks and social distancing became commonplace, and citizens were strongly encouraged to avoid crowds, indoor events and restaurants. Many schools converted to remote learning.

As day care centers closed, employees began to work from home (WFH) where possible, and major employers were forced to abandon the traditional workplace, some destined never to return. Office vacancies soared, leases were terminated, and the social fabric of the community was torn apart. Employers began to experiment with hoteling, platooning and flexible work schedules to get employees back to the workplace, but plans for a return to the office were significantly delayed — and WFH remained the order of the day. Downtowns across the country suffered as restaurants and retailers lost their customer base. Office landlords were under considerable financial pressure as vacancies rose, and tenants adopted WFH strategies that greatly reduced or often eliminated the need for traditional office space.

Office market: after the pandemic

Recent developments suggest that the worst of the pandemic may be behind us as the spread of the virus subsides. Tenants and real estate professionals alike struggle to define a clear vision of what the post-pandemic office environment will look like. Clearly, it will not be “business as usual,” as punctuated by The Great Resignation. The pandemic forced many employers to adopt WFH strategies never before considered. For many employers, the experiment was a success; for others, getting employees back to the workplace has become a priority.

Tenants returning to the workplace have reduced their footprints, with portions of the workforce working from home and others adopting flexible work schedules allowing for hoteling and platooning options. Leases are being renegotiated with “give back” provisions as downsizing prevails. Employees who have embraced WFH are reluctant to return to the workplace, while others long to return to a more collaborative environment. This presents a formidable challenge to tenants and real estate professionals alike.

Tenants need not face this challenge alone. Business owners should seek the advice of qualified real estate professionals to help them choose the space that offers the right balance of economics, functionality, flexibility and image that works for their company. Tenant representatives can help define the current and long-term space needs of all types of occupiers. They will also recommend creative solutions and negotiate lease terms in this brave new world.

Commercial Kentucky is independently owned and operated and is a member of the Cushman & Wakefield Alliance. Contact Cushman & Wakefield | Commercial Kentucky at (502) 589-5150 for your commercial real estate needs. Find out more about our Tenant Representation services at commercialkentucky.com/tenantrepresentation.

As a leading provider of commercial real estate services in Kentucky and Southern Indiana, Cushman & Wakefield | Commercial Kentucky, Inc. offers a comprehensive array of integrated real estate services to owners, users and investors of real estate.

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