As the worldwide COVID-19 pandemic continues to create challenges across many industries, the commercial real estate sector is also seeing struggles. In many downtown metro areas, demand for commercial real estate is diminishing. Real estate investors may need to reconsider where and how they invest. It is unlikely that commercial real estate will stop being a valuable commodity; however, savvy investors will need to quickly adapt in order to remain profitable. Experienced commercial real estate attorney and broker, Eric L. Nesbitt, advises clients across a wide range of business and real estate matters. Dwindling demand and rapidly decreasing profits often leads to disputes and conflicts, which is why it is so important to work with a professional who knows the industry well.
Office Space Demand Down
According to a story in the July 20, 2020 edition of the Denver Business Journal, leasing activity in the Denver metro area has reached historic lows with companies largely putting their searches for office space on hold during the second and third quarters of 2020. Moreover, there’s plenty of space on the market with total vacancy in the metro area growing to 13.6%. The glut of new sublease space will put downward pressure on direct rents. Asking rents in Denver area office buildings have not fallen drastically yet, but tenants can still find a good deal if they are patient.
Remote Work and Telecommuting on the Rise Before COVID
While yes, the current pandemic has put the shift toward remote working in hyperdrive, the trend started long before 2020. Just consider a report by Flexjobs.com, a job board that serves telecommuting job seekers. Per the report, which was a collaboration with Global Workplace Analytics, telecommuters earned on average about $4,000 more per year than those who reported to physical work locations. Furthermore, with the cost and expense savings of not having to drive, use fuel, and purchase expensive clothing, among other expenses, telecommuters tend to keep more of their money too. Another report reviewing the state of remote work in 2019, by OWL Labs, showed that even back in 2019, remote workers made more on the whole.
Diminishing Need for Office Space in Urban Areas
As employers continue recognizing the impact of COVID-19 and the growing trend toward remote work environments, companies are also discovering the cost-cutting benefits associated with using remote technology to perform many job tasks. For instance, large companies that once needed hundreds of cubicles to employee customer relations employees to answer phones and handle customer concerns are now discovering that with video conferencing, call forwarding, and secure tech options, they no longer need these employees in a large building. Ergo, they are discovering less need for large office leases. This in turn is reducing demand for commercial real estate in metro areas. However, the suburbs are now presenting a good deal of untapped potential, as many remote workers are opting to live in lower-cost but higher quality of life areas, such as far suburbs.
Where is the Demand Headed?
Interestingly, much of the demand in commercial real estate – especially in office leases – is shifting toward coworking and shared workspaces, as well as executive office suites. In particular, the demand is beginning to shift to distant suburbs, especially in cities that are on the rise economically. Coworking and shared workspaces are simply options that allow remote workers or those with flexible schedules the option to use a separate office for a limited amount of time or just when convenient, without long-term commitments or overhead. Per allwork.space, the demand for coworking office space is expected to continue showing rapid growth, with estimates as high as a 6% increase through 2022.
For those seeking to capitalize on the shifting trends in commercial real estate, it may be time to reevaluate large office spaces and consider how they may be repurposed to serve this new breed of remote workers. For questions about investing in suburban commercial properties, including coworking spaces, or other real estate legal needs in Colorado, contact the Law Offices of Eric L. Nesbitt, P.C. at 303-741-2354 or Info@NesbittLawOffices.com.