What will happen to commercial real estate?

Nature had been a disrupter long before the tech giants took up residency in northern California. The world-wide pandemic both challenged old ways of life and taught us we were more equipped, perhaps than most people thought, at using technology for daily tasks without the need of travel and face-to-face contact.

Just like with the tech sector, some disruptions proved the old ways were too good to let go. Printed books were thought to go the way of stone tablets, yet more than a decade after Nook and other on-line readers were launched, soft cover novels are still sold at airport newsstands. On-line k-12 school has not proven to be an improvement in so many ways. Both teachers and pupils fail to connect, learn and be mentored for larger life issues.

Workers who transitioned to the work-from-home venue have embraced the change. From recaptured commuting hours to flexibility, they rightly feel they are better off sitting in front of a computer in a residential setting rather than a commercial one. Hence it is not surprising that the leases on downtown office space are not being renewed.

The story doesn’t stop there however. As employees go to even greater lengths to profit from the new flexible arrangement by moving to lower cost states and capturing higher quality of life attributes, employers are making noises of adjusting salaries. Why pay coastal salaries to those who live mid-country? The market is adjusting and where the new balance will settle is still in play. But it is important to note that the private salary is priced out with consideration to the employee’s access to public goods at different locations.

The future of downtown space is also in play. Which groups will see the benefits of high density, proximity to arts and music venues, walkability to all the new restaurants which are bound to reopen once we finally conquer the virus? Will lower rents bring in a new wave of occupants?