Dror Poleg, author of the book Rethinking Real Estate and co-chair of the ULI New York Real Estate Technology & Innovation Council, examines the impact of technology on buildings. A former real estate and technology manager in the US, UK, China and Australia, Poleg also advises billion dollar global companies in finance, insurance and commercial real estate. The Commercial Property Executive recently asked Poleg about the future of office space and office demand.
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With COVID-19 still in turmoil in the US, many offices, especially in dense urban areas like New York City and San Francisco, are still nearly empty while employees work from home. What are your predictions for office demand after a pandemic?
Big cities are already lagging behind smaller ones in terms of the percentage of people who get back to the office. However, the demand for COVID offices never comes back before the COVID. A large minority of employees and companies will introduce more flexible schedules. Most of them will still rely heavily on offices, but for fewer hours and in some cases in different places and for different purposes. So while there is great demand for office space, it needs to be designed, marketed and made accessible in new ways.
What is your forecast for space per employee?
The average area per employee in 2020 was higher because employees didn’t go to the office, those who went to the office were in smaller cities that were less dense initially, and the only people who went to the office were those who who had no choice. This says nothing about the post-COVID world. When going to the office and interacting with people is unsafe, people avoid the office altogether. If it’s safe, the last thing pulling people back is giving them a worse experience than it was before COVID-19.
After the pandemic, many more companies will switch to hotel / on-demand space programs, which means the permanent space per employee will be less, but each employee’s footprint when actually in the office may be higher.
Will the demand for older office inventory decrease as employers look for newer office properties that may have more space, better air conditioning and more outdoor facilities, etc.?
Many older buildings have been in high demand over the past decade because they have more character, are in livelier communities, and offer better value to many types of tenants. Many of these also have perks only found in the COVID-19 or post-COVID-19 era, including operable windows, smaller floor panels, and the ability to easily get on and off without a lift. Many of them are also priced and structured, making it easier to revise their HVAC systems.
Large, new office buildings often have inoperative windows, are completely dependent on elevators, and have expensive and complex systems that are more expensive to modify. All of this does not mean that new buildings are doomed to fail. However, landlords shouldn’t be complacent and assume that bigger or newer is necessarily better.
As with other uses, older buildings are easier to convert, but this is always complicated and rarely makes economic sense. However, cities are now trying to incentivize such conversions so that we are more likely to see more conversions in the next few years than in the past few decades.
If more flexible or hybrid work schedules become permanent after the pandemic, what does this mean for office demand and the type of office space needed, especially in large cities?
As I wrote in my book long before COVID-19: “The office of the future is not a place, but a network that enables individuals to access a variety of locations that enable the respective task: recording a podcast, hosting Customer who does focused work, learns or works together. Most of them won’t be home. “Landlords should think outside the box and offer customers a complete solution that enables them to offer their employees such an experience. In practice, this means that many landlords have to work with new types of operators such as Convene, WeWork, and others.
Will the collaboration continue to flourish?
Traditional office buildings will continue to attract the majority of office users. However, we will see more workspaces appear in repurposed retail spaces, in hotel and multi-family projects, and in non-CBD office buildings that are closer to residential areas – even in cities.
One of the trends we’ve seen over the past few months is short term leases. Do you see this as a permanent shift?
We have already seen that even the largest office users like to shift a percentage of their portfolios to flexible operators. The latent demand for flexible real estate has been growing for decades. The only reason this didn’t happen was because of a lack of supply: companies signed long leases because they had no choice. Today you have a choice.
Before the pandemic, there was a growing trend towards moving from big cities to smaller towns, and this trend is continuing. What does this mean for the future densification of offices and cities?
Many people will continue to appreciate what cities have to offer. The difference is that people who want access to good jobs are no longer forced to live in the largest cities. Having a choice means cities will have to compete for individual talent like never before. Offices and cities are becoming consumer goods. They can no longer take their customers for granted. This is an incredible opportunity for developers and operators to generate more revenue per square foot than ever before. But it also means that those who try to stick to the old one-size-fits-all model fall behind in a race to the bottom or compete on price.
This interview has been edited for length and clarity.
Read the March 2021 edition of CPE.