Content sponsored by Business Furniture + Choreo, CSO Architects, and Cushman & Wakefield

In IBJ’s Thought Leadership Roundtable, experts at Business Furniture + Choreo, CSO Architects, and Cushman & Wakefield talk about the state of commercial real estate and why its future is brighter than it might seem.

What will the demand for office space look like post-pandemic in urban and suburban markets?

Tim Michel: On the other side of the pandemic, the economy will continue to create office-using jobs at a faster rate than most other sectors. As for urban centers, according to our data, central business districts typically account for 30-40% of all office leases in a given year. Although it looks like office occupiers are delaying decisions or opting for short-term deals until there is more clarity on the post-COVID-19 office market, there’s no evidence that businesses are fleeing CBDs en masse.

So, it is premature to conclude that a permanent shift to the suburbs is occurring, although suburban office properties likely will fair a bit better than CBD properties in the short term due primarily to lower density and, to a lesser extent, closer proximity to where employees live. When CBD properties rebound, likely in the 2022/2023 timeframe, it will reflect pre-pandemic demand for cool, engaging workplaces, especially among tech, design and other progressive companies looking to compete for and retain talented employees. Moving forward, the most successful suburban office properties will be the ones that mimic the walkable, vibrant CBD experience.

Alan Tucker: Work-from-home has put a spotlight on the time that is spent commuting. This will make suburban markets attractive. Clearly, the distance from home to work will be a consideration when selecting an office location. A 15-minute commute is preferable to a 30–45-minute commute. But the decision to be close to the office could also increase the demand for downtown housing.

Urban centers are not doomed. Human beings have a deep need to be around other people for both productivity and mental health. Government and business leaders will have to have a meeting of the minds in order to retain a vibrant downtown experience and maintain Indianapolis as a successful and attractive convention destination.

What can employers do to bring people back to the office?

Mary Beth Oakes: We believe employees want to get back to the office, but they want to go back to something better. Our clients are finding new ways to re-configure their space to create something safe and compelling, while also incorporating some of the touches of home we’ve all grown accustomed to after working from home for the past year.

Employees are longing for in-person connection and collaboration. It’s an exciting time for our industry and for employers who are re-thinking the way their teams do their best work. We do think a lot of companies will go to a hybrid approach, a few days in the office and a few days at home. But not everyone’s work-from-home experience was pleasant. Family, Zoom calls, pets, poor technology connections—it can create different experiences and distractions.

We believe your space shapes your behaviors and your behaviors are your culture, so we are passionate about the office and the experience for employees to go back and re-ignite their company culture.

Tim Michel: Leadership will need to plan for in-person interaction, and managers may have to actively dictate in-office team meetings. This can come in many forms, from using software to manage and reserve office space, to team managers mandating in-office attendance on certain days of the week or month, or corporate executives having socialization events, retreats, and conference-like sessions.

While many surveys indicate employees want to work half or more of their time from home post-COVID-19, there is belief this will change when more people do end up back in the office. Workers will worry that their colleagues in the office are having a better experience and that they—remote workers— are missing out and their careers are suffering because of it.

Alan Tucker: Each employer knows their employees and understands their business, and knows which positions need to be in the office and which can flourish and function effectively outside the office. With remote employees, we have observed shortcomings and issues associated with collaboration, mentoring, productivity, and socialization. If businesses are thoughtful and put appropriate protocols and guidance in place, people can return to work. Businesses should make whatever physical modifications are necessary to protect employees and bring back staff in small waves to test the protocols. At CSO, we have been successful in hosting most of our staff in the office. Companies need to ask, is the culture suffering due to at-home work? Is there an effective on-boarding strategy in a remote setting? Are morale or profits being impacted? Depending on the answer, it may be time to bring some employees back.

How will office space/office layouts need to change to stay viable in a post-pandemic world?

Tim Michel: Little change is happening with building layouts in the short-term, beyond accommodating social distancing. However, the long-term expectation is for expanded communal space, such as conference rooms of various sizes, huddle rooms and social areas for people to congregate; cafés; hospitality-style sitting areas; village greens and more.

Bringing people together and empowering them to create new ideas, products and relationships is the purpose of place. Because the emphasis of the office will likely be for collaboration, connectivity, socializing and innovation—activities that are difficult to support through remote work—office space will change to reflect this shift.

Alan Tucker: It will be important to integrate collaboration and technology. Work must be a destination, a place of value, and effective for conducting business. There is an opportunity to re-create the office with a focus on touchless features, functionality, and technology. Of course, we do not know the nature of the next virus. Therefore, we don’t know how it will spread or what the rules will be when it arrives. As a consequence, maximum flexibility and good health and sanitation practices will be critical going forward.

Mary Beth Oakes: It’s all about ancillary spaces for us at Business Furniture + Choreo. It’s why the opening of our new showroom in downtown Fishers has us so inspired. We named the space MINDSET, because it represents the shift in mindset we all need to stay relevant in a post-pandemic world.

Post-pandemic workspaces will give employees choice and control over where they can do their best work. From focus time to collaboration, each layout needs to include a range of options for teams and different personas in a work environment.

Technology is so essential now. Spaces can incorporate those working from home, or remote, and those in the office. Investing in the right technology—video screens and a digital infrastructure—is key to being fully set up for success in this new hybrid/flexible location strategy.

What are the challenges for employers that choose to maintain a hybrid-work model?

Alan Tucker: Our research indicates that this is the most challenging model. Some businesses and job functions experience very little productivity changes, etc., but there are many businesses that simply cannot function with employees at home. And there are many job functions that can operate relatively effectively a few days in the office and a few days working from home. It all depends on the business and what their key tasks and responsibilities involve. It can be challenging to develop a team approach remotely. It will be more challenging to maintain your culture when your team is not physically together. From a personnel standpoint, it must be very clear why certain folks are allowed to work from home five days a week and others are not. If policies are clear, company goals are being met and the home vs. office connectivity quotient is being monitored, it can and does work. The mentoring and training of staff will be a challenge. In many cases, it will require extraordinary effort to monitor job satisfaction in the interest of retaining key people.       

Mary Beth Oakes: Employers should keep an eye on the impact of a hybrid work model on culture. When employees go long periods of time away from each other focusing on their individual tasks, the relationship and camaraderie built through being together at the office may be weakened. At Business Furniture + Choreo, we found the productivity of remote work surprising and positive. But over time, we realized some team members were losing their perspective of how their individual work related to our overall strategy. We also felt the weakening of relationships through less face-to-face interaction.

A recent survey showed some employees feel lack of empathy from their peers when that “water cooler” talk at work goes away. How can you really know how your co-workers are feeling or what may be happening in their personal life? There are challenges around a true disconnect, so we have to stay focused on the importance of culture and working to find new ways for our teams to work together and connect.

Tim Michel: Flexible work arrangements are not new. However, workplace strategy has largely defaulted to an office-first perspective. Employees being in the office several days a week will make quality, services and amenities even more important, as the office is designed to offer what remote work can’t. Now more than ever, employers will need to understand employee preferences to make evidence-based investment decisions on services and amenities that impact the experience and provide incentives for employees to come to the workplace.

How might working from home look different five years from now?

Mary Beth Oakes: I think aspects of work from home will become the norm. Technology is going to get better and better and office spaces will be equipped to help connect teams from all over.

I’m thankful we can now incorporate touches of work-from-home into the office, by pulling in residential designs and workspaces that feel like your living room. We all need to adapt our spaces to give employees some of that choice they’ve grown comfortable with over the last year. Some were starting their day at the kitchen table and then wrapping up from a cozy spot on the couch. We need to be flexilble to give that similar experience in the office. Allow your team to find new spaces to do the task at hand.

Tim Michel: First off, the pandemic completely normalized the idea and practice of work-from-home. I’m not saying everyone loves it or that it works well for all companies.  However, work-from-home is here to stay and will be a part of a hybrid approach for a lot of companies and practically every industry to some degree.

There will be as many failures as successes in the near term, as companies test and refine what works. Assuming the economy remains strong, look for employers to cater to the needs/requests of employees so long as productivity is maintained.

Turning to a couple of other sectors, what is the outlook for demand for both industrial and retail space?

Tim Michel: The industrial market showcased its strength throughout the pandemic, and we only see that continuing. Our market recorded 10.3 million square feet of industrial net absorption in 2020, nearly matching 2019’s record. More big deals are on the way, in both established markets like Plainfield and Whitestown and emerging submarkets like Mt. Comfort and Whiteland. In 2019, we had two transactions over 700,000 square feet. In 2020, we had six transactions above 700,000 square feet, and we’ve already had three over 1 million square feet in 2021. We’re seeing similar activity in Columbus, Louisville and Cincinnati, which, combined with central Indiana, comprise what industrial experts are calling the “ecommerce heartland triangle.”

As for retail, it’s showing amazing resilience with small-shop occupancy very high in suburban markets and high-traffic areas. Grocery- and discount-anchored centers remain in demand. As consumer confidence grows, retail sales will grow, keeping the retail sector vibrant.

Alan Tucker: Ecommerce will drive strong demand for industrial/logistics facilities, and our supply chain shortcomings, which came to light during the pandemic, will likely be addressed by business in an exuberant manner. But traditional retail is not dead. It will just take on a different focus—it will be more experiential, and that includes restaurants and entertainment. After a year of being locked down, folks are ready to get out and experience life again—good food, beverages, music venues, and quality merchandise.

How has the pandemic changed the calculus for real estate investors in all sectors?

Tim Michel: The situation remains fluid, but encouraging signs indicate that the worst of the pandemic’s impact on property is largely behind us. The capital markets entered 2021 with momentum and with several notable tailwinds, including low interest rates, tremendous capital, attractive yields and strong pent-up demand for assets. Also, unlike the Great Financial Crisis, investors can see the bottom and are eyeing a synchronized growth scenario that could be in the works.    

The capital markets are recovering faster than the leasing markets, and with tremendous capital and pent-up demand for assets, conditions are ripe for further acceleration, especially with industrial, perhaps the most sought-after commercial real estate asset class in the world.

The pandemic has reminded investors how steady the Indiana multifamily sector is, particularly in Indianapolis. With the only exception being the downtown Indy submarket, rents and occupancies either grew or remained steady. Multifamily should remain a sector to watch post-COVID-19.

How are you helping clients prepare for and navigate the post-pandemic world?

Mary Beth Oakes: At Business Furniture, we tap into our sister company Choreo to help clients navigate this new world through our change management services—administering employee surveys, conducting workplace research, and holding leadership sessions to share the data we collect. We are using the same strategy for our own team right now and we’re feeling so much energy knowing we’re asking the right questions and re-imaging our own space to support and engage our culture to be something better!

Alan Tucker: We need to integrate lessons learned from the acceleration of the work-from-home model into the projects we design for our clients. Prior to the pandemic, there was a reason why offices were focused on openness and collaboration, and this will remain an important element of space planning going forward. We have to help our clients by understanding their business and its values, challenges, people, and technology, and develop space solutions that can change as the future work model evolves. We must make sure we have an appropriate vision of the work environment allowed by the pandemic—and what it might look like when not restricted by the pandemic. 

Tim Michel: Our national and global workplace strategy teams have provided industry-leading insight here in Indianapolis and around the world. Early in the pandemic, Cushman & Wakefield created a 32-page “Recovery Readiness Guide: A How-to Guide for Reopening your Workplace,” leveraging insights and best practices from its recent experience moving 10,000 companies and nearly a million workers back into 800 million square feet of buildings we manage in China through a joint venture with Vanke Service. This piece, as well as a range of others regarding the workplace and return-to-office, has been instrumental in helping both clients and non-clients alike to implement recommended practices and protocols for success in dealing with the pandemic.