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A New Normal for Everyone: Commercial Real Estate in 2021

While we’re not “done” with this pandemic by any means there is a sense around the industry that we may finally have some positive momentum. Industry-wide the changes since the early shutdowns in March of 2020 have been numerous, some (more than others) will stick and some will fall to the wayside as traditional methods of commercial real estate practices become more available to the reopening of our country.  Since it’s been a hair over a year since we first wrote about this, we thought it would be great to highlight some of the positive trends coming out of the last 12 months for stakeholders.

So what’s this new normal everyone keeps talking about?

Technology. A supremely vacuous term, especially as it relates to commercial real estate. In the past decade we’ve seen more “solutions” than we can count come and go (including some of our own!). That doesn’t mean technology and CRE cannot be friends, quite the opposite, it just means that our industry is unique and true solutions require a tailored approach to succeed.

Here’s what we think will stick in the world of technology and CRE:

Virtual property tours: This isn’t a “new” approach in real estate but during a time where in-person touring was wholly unavailable for an extended period things like 3D photo’s, virtual touring software and video became essential tools for leasing teams and brokers working on behalf of occupiers. It’s not just about great digital marketing tools, it’s making these tools accessible on many devices for occupiers and brokers to view easily. This was happening pre-pandemic but it’s going to stick, with good reason.

Our Favorite Solutions: Matterport, VTS, Buildout, Realync

Collaboration Tools: Think Microsoft teams but CRE…we mean software built to make the lives of occupiers and users easier. Cloud repositories for documents, seamless tracking of deal stages, and multiple access points to keep everyone in a deal up to speed. Gone are the days of sending an email with 8 people CC’ed (hopefully). We welcome this trend, and as major firms like CBRE, JLL, and others lean into this collaborative approach of broker+client we expect this to become the standard not the exception. 

Our Favorite Solutions: Dealius, Occupier, BiProxi, ProDeal

Flexibility: This one is a thinker, we (like many others) do not think the need for space has fundamentally changed. Ad nauseum we see studies citing 9/10 employees want a return to the office (and 10/10 want a return to normalcy!) but the way occupiers USE space is very different. A focus on density reduction means flexible schedules (one week on/off) for employees and virtual meetings will be far more prevalent. Users may lease more space to keep distancing standards as well. In the short to mid-term, we expect companies that can/want to occupy real estate to be far more mindful of how they approach their leases. This means shorter terms and perhaps higher rates in markets that warrant it. Design of new spaces will reflect this as well! Companies will want to keep their options open.

Our Favorite Solutions: CommonDesk, Industrious, Spacer, Cove, TwoFold

Health: Standards around sick employees have strengthened ten-fold. No longer will an employee be expected to come in if they’re not feeling 100%, to protect others. Virtual solutions for customer service roles have expanded significantly, with companies like American Express leaning in hard to reduce transmission. Buildings are making significant improvements to infrastructure to both improve cleanliness (air and surfaces) and make the return to the office as productive and safe as possible. This will continue for the long-term, these investments are not cheap and the health of occupants has never been more important to both the Tenant and Landlord.

Our Favorite Solutions: HqO, Helium

Finance: Cash is king, more than ever. Businesses in many respects were decimated by the pandemic, especially ones reliant on in-person interactions. While many have tried to shift operations to more virtual/digital offerings some businesses really require in-person sales to be successful. These businesses will be more mindful of cash on hand, likely looking to reduce costs and hiring in the short term as they rebound. For expanding businesses they will be looking to negotiate from a position of strength as vacancy rates are up almost everywhere in the US sans a few lucky markets. Landlords will need to get creative, offering more turnkey solutions with shorter-term deals. They will also need to be open to solutions that improve the leasing and post-deal experience for their tenants. This means embracing the digital signing of leases and considering options (like Otso) to reduce friction and require less cash out of pocket for users. Brokers will understand these dynamics greatly and expect to be compensated for bringing new solutions to their clients (along with deals of course). 

Our Favorite Solutions: Otso, Dealius Capital

Leases: Fundamentally the lease document is likely to change. We will expect more provisions around “acts of god” and “pandemic” protection for tenants who are barred (legally) by their government or some other force from using their space. The status quo during the pandemic did not work for the Tenant or the Landlord so we expect to see tighter standards around lending, insurance overhaul, and other major shifts to account for what some call the new normal.

Our Favorite Solutions: Obie RIsk

If you’re a Tenant seeking space we encourage you to take these trends into consideration when seeking space. If using a broker, many professionals in the CRE space are leading the charge so you are in good hands. As Landlords, it’s essential that you embrace these trends. Learn the lessons from 2008/2009 and make changes to adopt and embrace technology to improve tenant experience, speed deal-making, and attract/retain tenants at a higher clip. As with anything, if you fail to consider these new paradigms history can often be unkind to those stuck in their ways. Commercial real estate isn’t going anywhere, in fact, it’s getting better.

Let’s make our industry faster, safer, and more equitable as we embrace the new normal 🙂

Otso is leading the charge on reimagining the way commercial leases are securitized for Tenant and Landlord. Occupiers save essential capital for their business while Landlords enjoy significant amplification of underwriting and an average of 300% more coverage against leasing risks. Learn more today at https://otso.io

 

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