Countless companies have reverted to remote work arrangements in the wake of COVID-19, and given the logistical complications of bringing workers back to an office setting, a lot of businesses will no doubt seek to extend these at-home arrangements at least another few months. But in late July, Google (NASDAQ: GOOGL) announced that it will be allowing its employees to work from home until July 2021. And that could spell trouble for commercial real estate investors.
The implications of Google's announcement
Google is a major player in the tech field and a well-known name across the board, so when it acts, other companies are likely to follow suit. The result? A large number of businesses may opt to keep their staff working remotely well into 2021 as well. Some, in fact, may decide to keep workers home indefinitely, especially since the past five-month trial run has, for many businesses, solidified the fact that workers don't necessarily need to be crammed into an office to be effective and productive.
All of this is good news for employees. Not having to commute will enable many people to reap cost savings, and working from home will allow for more flexibility and work-life balance. But from a commercial real estate perspective, Google's move spells trouble, especially if many more companies opt to follow its lead.
If companies pledge to let workers do their jobs remotely well into 2021, it means many commercial leases may not get renewed in the near term. And commercial landlords and investors may struggle to fill those spaces at the price points they're used to, especially with the pandemic being far from over.
Also, the longer companies stay remote, the more used to that setup they might grow. If that happens, they may not need as much office space once the crisis ends, especially once they crunch their numbers to understand the cost savings a mostly or fully remote staff results in. And that, again, hurts real estate investors.
What real estate investors can do in light of the remote work trend
There may soon come a point when demand for commercial office space declines sharply. To get ahead of that, commercial landlords and property management companies may want to make it attractive for tenants to sign longer-term leases. Lowering rents would clearly constitute a financial hit, but if it prevents extended vacancies, it may be worth it.
Commercial landlords may also need to pivot and find ways to repurpose office space that might otherwise sit vacant, at least in the near term. Converting unoccupied offices to residential homes is one avenue to pursue if commercial demand drastically wanes. But based on location and zoning laws, that may not be feasible. As such, commercial landlords should start strategizing now on how to retain tenants in an age when remote work not only holds added appeal but has proven itself as a sustainable model.