It’s been four years since COVID-19 began emptying office buildings worldwide, and the commercial real estate sector is still feeling the fallout. Higher interest rates, waning demand for office space, and empty, difficult-to-convert office towers are among the challenges the market faces.
Those same trends present an opportunity for the sector to adapt to how people want to live and work today.
At the 2024 MIT World Real Estate Forum in June, industry experts offered their perspectives on the sector’s opportunities and roadblocks.
They suggested ways that commercial real estate could be reimagined to provide more flexibility — encompassing everything from shorter lease terms to office spaces designed with the help of artificial intelligence.
“People went home four-plus years ago; many of them never came back. Those that [did] are showing us that they want completely different things,” said Dror Poleg, an economic historian and author of the 2019 book “Rethinking Real Estate.”
“The restaurants are full, the hotels are full, the venues are full. Just the offices seem to have a problem, and housing seems to have a problem in terms of accommodating people where they actually want to be,” Poleg said.
Amid an environment where about a fifth of U.S. office space remains empty and commercial real estate prices overall have tumbled by 11% since March 2022, the panel — moderated by James Scott, director of the MIT Real Estate Transformation Lab — looked for bright spots.
One big challenge is that the office buildings of the past are not fit for the future, said Benjamin Breslau, chief research officer at Jones Lang LaSalle, a provider of real estate and investment management services.
“There are probably too many of them, and some percentage, we’ll find out, are somewhat obsolete, either from a modernization, sustainability, technology, or a location perspective,” Breslau said. “Those things are hard to change, especially in a world where the cost of capital is high and capital is not looking to flow into office buildings.”
Conversely, mixed-use
commercial real estate — which combines commercial and residential — is thriving in areas such as Newbury Street in Boston’s Back Bay, a formerly residential area where there’s more structural flexibility than, say, in an area with multiple office towers.
“A lot of our clients are telling us right now they have offices in the right cities but in the wrong neighborhoods,” said Breslau.
He predicted that more
people will want to work and live somewhere that feels like a community and said that mixed-use environments can help achieve this.
With sustainability a priority for many companies these days, mixed-use buildings are being touted for their ability to help the environment by reducing commute times.
However, Jinhua Zhao, professor of cities and transportation at MIT, said that it’s important to consider how the hybrid mindset can contribute to carbon emissions as it relates to the buildings themselves. In a
“work everywhere, anytime” environment, electricity is usually on both at home and in the office, whereas before and during the pandemic, it was mostly one or the other.
“People love flexibility, but we have a huge price to pay for it,” Zhao said.
Source: MIT
