The commercial real estate industry has had a turbulent few years as developers and property owners adjust to the changing post-COVID markets. Commercial real estate that was once in dire need of tenants is seeing slow improvements as people return to in-person work.
However, commercial developers can’t play by the same rules that they stuck to before 2020. Now, tenants have a different set of expectations for what they require in an office space before moving their business back to in-person operations. That’s why we’re looking at the latest trends and exploring how real estate markets have changed in just the past few years. If you are interested in learning more about the current state of commercial real estate, keep reading to understand how building automation systems and hybrid work are changing the industry. Let’s dive in!
Automated building controls
In just the last few years, building automation has become far more widely available due to lowered cost and ease of installation. For example, automated building controls that previously needed expert installation and required extensive training for onboarding are becoming a thing of the past.
Now, with the help of the Internet of Things (IoT) and Power over Ethernet (PoE), commercial properties can easily automate every system within the building. By automating building systems, tenants can benefit from reduced energy costs and more intuitive automated building controls. Let’s take a look at a building’s HVAC system as an example.
Heating and cooling can be extremely expensive for commercial properties—especially very large commercial properties—making up nearly 25% of monthly energy costs. Using a regular system without automation requires tenants to manually adjust the temperature on the thermostat to stay comfortable. When HVAC systems rely on human inputs, it often leads to uncomfortable indoor environments and wasted energy. By installing a smart thermostat and a set of temperature sensors, tenants can take advantage of building automation controls without breaking the bank. By connecting these devices over a wireless IoT network, the sensors and smart thermostat will communicate with your HVAC system to automatically adjust based on the indoor temperature. This system adds value for potential tenants and helps them save money as the temperature is constantly monitored and controlled based on data rather than personal preference. By using IoT devices to control the HVAC system instead of manually adjusting the thermostat, tenants experience superior heating and cooling while saving energy. In some cases, there are even rebates that companies can take advantage of for implementing energy-efficient devices like smart thermostats.
Retail recovery
It’s no secret that retail sales have suffered over the last few years, which in turn has affected the commercial real estate markets. However, with stores back open and new businesses popping up every day, retail spaces are becoming more highly sought after. This is—of course—not true across the board with enclosed malls still suffering a sharp decline in tenants. Outdoor town centers on the other hand are becoming more popular and can attract a wide variety of tenants and customers. These town centers include shopping options as well as restaurants and a whole host of other retailers that add value to a suburban landscape.
It is also worth noting that previously direct-to-consumers are seeking out brick and mortar sales more than ever. An excellent example of this trend is Warby Parker eyewear. Once a direct-to-consumer eCommerce store, Warby Parker is now opening many physical retail locations to expand its reach and offer in-store sales opportunities. As other direct-to-consumer brands begin to seek out physical locations, expect to see a slight uptick in new retail developments in the near future.
Urban centres are still thriving
During the height of COVID-19 lockdowns, it seemed like large U.S. cities were bleeding occupants faster than the market could handle. However, in the last year, we have seen large urban centres like New York and Los Angeles rebound more quickly than expected. In fact, vacancy rates in the largest U.S. cities are almost back to where they were pre-lockdown.
Additionally, the cities that Americans moved to throughout the pandemic are currently booming. Places like Austin and Nashville are currently experiencing booming growth in both their urban centres and suburban sprawl. In these smaller cities, the majority of new commercial development is happening in the suburbs. Since the population of these cities has skyrocketed in such a short period, companies are looking toward the outer ring of suburbs to create smaller, satellite cities. As seen in places like Washington DC, these satellite cities provide rich landscapes for individuals to live and work.
So, while it may seem like everyone left the big city in favour of rural living, there are still many opportunities for urban and suburban development in 2022.
Hybrid working environments
Offices are likely the type of commercial property that was hit the hardest during lockdowns. Now, many people are just returning to in-person work for the first time after nearly two years of working from home. However, businesses are not flipping the switch from full-time work-from-home to full-time in-person work. A lot of companies are taking advantage of hybrid work models where employees work partially in the office and partially from home. The breakdown of these hybrid schedules will differ from company to company, but the principle remains the same—offices need to change to suit the way people work.
The kinds of changes required for hybrid work are innumerable—but we’ll be discussing just a few easy changes that developers can make to better suit a remote work environment. The first change that developers can make is to take a step back from the open floor plans that previously dominated the market. With hybrid work, more people are taking video calls than ever, which requires private space with limited distractions.
To create a successful hybrid work environment, developers need to integrate both private and collaborative workspaces. Another aspect of hybrid work that developers can take advantage of is coworking spaces. While some people prefer to work from home in their actual house, many people are using coworking spaces to simulate an office environment while working their remote jobs. Because of this, coworking spaces are becoming popular additions to commercial real estate developments and are easily attracting tenants.
Focus on sustainable transportation
Now that we are all culturally more aware of how climate change works and how we can limit our emissions, commercial developments are doing the same. Previously, commercial developments were constructed with vast parking lots that covered potential greenspace and encouraged automobile reliance. Now that we know that carbon emissions from our vehicles are causing environmental harm, developers are searching for solutions to help ease car dependency. One of those solutions is developing properties with easy access to public transportation. Cities like Denver and Washington D.C. have recently made major upgrades to their train systems, adding more stops to ease traffic congestion and make travel easier for people who do not own cars. This creates accessible development opportunities that will attract people looking to cut down on their personal carbon emissions.
Developers are also cutting parking spaces for new developments in an effort to encourage people to find different transportation methods other than vehicles. In addition to cutting parking spaces, developers are adding bike racks, stations for city scooters, and more options so that people are encouraged to leave their cars at home.
As we’ve mentioned, real estate development priorities have massively shifted in recent years. In order to keep up with market demands, developers need to shift to accommodate the everchanging markets. The good news is that there is an overall uptick in tenant occupancy in both urban and suburban areas, meaning that people are once again returning to their normal working and shopping habits. As commercial real estate begins to return to normal, expect even more changes as the world continues to adjust post-pandemic. While we can’t predict what will happen for the future of commercial real estate developments, we can plan for current behavioral changes and create innovative solutions that cater to the current real estate market.