June 7, 2024
Is office realty ever going to return to the way it was before, or are we truly in a new normal? The seismic shifts initiated by the COVID-19 pandemic, coupled with the widespread adoption of remote work, have transformed how we think about office spaces. The blend of virtual and physical work environments is now more important than ever. This evolution brings both exciting opportunities and daunting challenges.
The Integrated Lease Alliance consists of like-minded individuals dedicated to providing creative solutions to the changing needs of our office realty network. By leveraging our extensive connections and collaborative efforts, we aim to influence and support the wider real estate community, ensuring everyone can thrive in this evolving landscape. Our innovative approach benefits owners, tenants, and real estate agents alike, ensuring everyone is equipped to thrive in this new landscape.
To uncover the most pressing insights about the current state of office realty and what the future may hold, we turned to top industry experts. Their perspectives illuminate the emerging trends and strategies that will shape the future of office realty.
Here’s what the experts had to say:
Office Realty Now
It’s impossible to overstate the impact that the COVID-19 pandemic had and continues to have on office realty.
From the shift to remote work to the rise of secondary markets, the pandemic radically reshaped the landscape of work in ways that still can’t be fully understood, and there’s very little chance that office realty will ever return to where it was pre-pandemic. 74% of U.S. companies operate or plan to operate with a hybrid work model, and Upwork estimates that by 2025, roughly 22% of the American workforce will be fully remote, radically reducing the need for traditional office spaces. As of 2023, vacancy rates for office buildings were at 13% and climbing, and some estimates predict that 10-20% of existing office spaces will need to be completely restructured, according to Forbes.
"Office landlords need to realize that we're now in a place where they have to start thinking more in a hospitality mindset," said Ryan Elazari, President of NAIOP NYC and co-host of the CRE Unplugged podcast. "They have to really cater towards tenants, and not just sign a five to 10 year lease, hand over the keys, and go and say, 'Alright, well, we'll talk when you need to renew.' I think now there's so much more that needs to be done to cater towards your tenants."
As companies downsize their presence in major cities, there’s been a corresponding rise in interest for suburban and secondary markets. Many office buildings have begun to offer a greater number of amenities to entice companies to stay, particularly around more mental health-friendly options.
"[It has] created new opportunities for innovation and adaptation, particularly in response to changing consumer behaviors and business dynamics," said Aviva Sonenreich, managing broker of The Warehouse Hotline and a broker, owner, and investor in Denver, Colorado.
Office Realty of the Future
Beyond short-term improvements and upgrades to manage the present, a much more pressing question is what office realty will look like in the future, particularly as emerging technologies continue to evolve and influence day-to-day life.
"Emerging technologies such as AI and the metaverse offer opportunities to enhance the efficiency, sustainability, and user experience in the commercial real estate industry," said Sonenreich. Machine learning can harvest data to give owner operators tremendous insights into how best to reduce inefficiencies and maximize the value of their properties to a degree that’s never been possible before.
As the AI market continues to grow, the challenge for leaders in office realty now is navigating an industry that many are still unfamiliar with to find the right technology and platforms that suit their needs.
"What needs to happen is owner operators need to be getting more knowledge on the different platforms that are out there so that they don't feel that overload, and they could kind of feel more comfortable about adopting more tech," said Elazari. "I think there needs to be a lot more education out there for those owner operators, so they could feel comfortable with the metaverse, with AI, with any type of Prop tech."
In terms of the metaverse, the blending of physical and virtual spaces has significant potential to reshape many areas of life, but it could have a particularly strong impact on the workplace, as employers seek to capture the benefits of in-person work for their remote and hybrid employees.
The metaverse could provide a space where in-person and online employees coexist, reducing the negative impact that remote work can have on employee connection and company culture. It could also make working with AI a much smoother and more comfortable experience, as virtual assistants would take the same form as any other online employee.
"Picture a conference room where an AI avatar seamlessly joins the discussion along with remote and in-person employees, making meetings feel as if everyone is physically present," said Ronan Sorensen, CEO of Intellectmap Corporation. "These AI avatars not only participate, but also provide real-time summaries, generate ideas, offer unbiased insights, and streamline workflows, boosting collaboration and freeing up time for strategic tasks.”
Metaverse and AI integration would open a wealth of opportunities for owner operators to differentiate themselves and secure office leases in an increasingly competitive market, as the demand for traditional workspaces declines.
"This is perhaps the most radical shift of the new normal in commercial leasing, and its current trajectory promotes growth for property owners and real estate professionals," Sorensen added. "This rebalancing will reshape tenant expectations in leasing physical commercial office space, with a new emphasis on AI-enabled physical offices accessible globally."
The integration of office realty with digital spaces like the metaverse also offers a unique opportunity for companies to redefine their presence in new cities. By integrating its workspace with the metaverse, a company can establish a presence in a given city and start building a cohesive and collaborative space for employees before it has secured or fully built out a physical location. Local employees can come in for the day and work together virtually months or even years before an organization has a physical office, meaning teams can hit the ground running once that space is secured, and executives can know exactly what their teams need inperson before they’ve signed a lease.
"Tying virtual and physical together with tech may be a challenge," said Brian Vaughn, of Facility Performance Consulting, but if you can get it to work, it "provides best of both worlds (remote and in person)—you get the pieces that are missing without having to abandon remote work."
This paradigm shift also allows desirable office buildings to offer their spaces globally, while other companies can scale down their presence and utilize a portion of those virtually-available premises. With a larger market, properties can move towards full occupancy, maximizing their potential and meeting the evolving needs of tenants. "I think it can make a big difference in terms of the overall scope of commercial real estate," remarked Elazari. "…Metaverse and AI, I think, will be the next step."
By: Sophia Sorensen & Emilia Richter
Integrated Lease Alliance
integratedlease.org
Are you ready to dive into the future of office realty? Join us at the Integrated Lease Alliance to explore the potential of cutting-edge technologies like AI and the metaverse. Together, we'll shape a new era of innovation and growth in commercial real estate.