By the end of 2021: What will work look like?

A temporary exodus from primary markets

The pandemic fundamentally altered the way people view living in the city. San Francisco experienced a huge dip in rental prices. Chicago saw huge changes needed to adjust to the post-pandemic office environment. New York’s reputation as the ‘city that never sleeps’ took a nap.

Tens of millions of workers became unemployed, furloughed or started working from home because of the pandemic. It is no longer a necessity to live within commuting distance of the office or pay the rent prices that come with it. Even if they could still afford to pay rent in the city, people don’t want to. They are craving something different — more land, bigger spaces, closer to nature — and they’re making it happen.

Suburban Jungle, a real estate company that specializes in moving people from cities to suburbs based on their lifestyle preferences, experienced more than a 300 percent increase in traffic to their site compared to this time last year. Young professionals are in a unique position where they can give up their small, expensive apartment for a multiple bedroom house with a yard. The idea seems very appealing when there is no end in sight to the pandemic and no guarantee we won’t have to lockdown in the future.

States that have experienced high population booms in the last couple of years due to large corporations moving there, like Texas, may experience less of a draw to their cities. At least, the draw won’t be from people moving for corporate jobs in the area. This is because work-from-home orders allow employees to live wherever they want, rather than within commuting distance from the office. Corporations may still continue to relocate to states with more attractive tax policies or incentives, but the workers will not always follow because they have the freedom to live and work from where they want. States and regions looking to attract more working professionals will need to focus on amenities and building a vibrant community.

As a result of the mass exodus from cities, there is an increase in vacant spaces and a decrease in rental rates in cities across the country. San Francisco, Chicago and New York are all experiencing drastic changes to their economies due to various repercussions of the pandemic. Destination cities and smaller secondary markets that offer attractive cost of living and amenities will draw more workers with flexible work-from-home schedules. Those workers may ultimately be coming from primary markets like San Francisco, Chicago and New York.

Chicago At A Glance

Chicago at a Glance Currently, the streets of Chicago are empty compared to what they used to be. Similar to many other cities, bars, restaurants, shops and entertainment have been greatly affected by the pandemic. While the city has lifted some restrictions to entice people to come back, it’s the employer’s return that really matters. In order for that to happen, high-rise offices are going to change. Chicago developer Parkside Realty wasted no time in drafting plans for the first office building designed with a post-pandemic environment in mind. The building is located in Chicago’s Fulton Market District and is set to open before the end of 2020.

Many structural changes were implemented to ensure the health and safety of the occupants, including a hands-free elevator, which is operated by foot-activated call buttons and airPHX, a non-thermal, plasma technology that ensures cleaner air flow throughout the building, which is proven to reduce the spread of viruses, bacteria and mold almost entirely. Other design modifications include touch-free temperature scans, automatic washroom fixtures and floor layouts that are flexible and account for social distancing. These human-centered technologies prevent the spread of coronavirus, as well as the common cold and other contagious illnesses that thrive in a crowded office building.

City leaders are in the process of coming up with a cohesive plan to allow employees to return to the office safely. It will be up to individual businesses to decide what measures they are willing to take to ensure the health and safety of employees. This can include temperature scans in the lobby, one-way traffic flow, barriers between desks and mandatory masks. However, there are many obstacles that add complications. It could take hours to ride the elevator in a 15,000-person office building, such as Willis Tower, when only four people are allowed in the elevator at a time. How will employees store their lunch in the office when they can’t use a communal refrigerator?

The pandemic has reversed office trends that became popular in the last couple of years like bench-style seating, large open spaces and very few barriers. The goal in the past was to get employees closer and collaborate more freely. Also, large amounts of money were put into amenities such as gyms, which used to make buildings more appealing. However, these amenities are not used during a pandemic and may be out of touch with health concerns in our post-pandemic world.

New York At A Glance

When you think of New York, you picture skyscrapers higher than your eye can see, thousands of commuters and a lively restaurant and bar scene. Manhattan has the largest business district in the nation, which is now at risk due to COVID-19. The city relies on taxes generated from thousands of workers commuting on public transportation and commercial offices. Just like every other city in the world, companies are deciding whether or not there is a safe way for employees to return to work, or if they ever will.

Executives are starting to wonder if office space is really necessary. It is hard to imagine a near future where people would be comfortable crowding in an office together. New York landlords are confident that people will be desperate to return to the office after months of isolation, but they may be too optimistic. With the majority of employees working from home for an indefinite amount of time, companies are starting to realize that they can operate successfully remotely and no longer have a need for office space.

Due to the high unemployment levels, many companies are looking to cut costs by reducing real estate, but New York relies on real estate tax to make up a third of its revenue. The city is losing millions of dollars because commuters aren’t spending money at the places they would during a typical work day pre-pandemic. OpenTable predicts that 25 percent of restaurants are at risk of closing due to the pandemic and that social distancing laws will prohibit concerts and large gatherings well into 2021. Bars and restaurants simply can’t sustain their business under these conditions and iconic neighborhoods like Chinatown are at risk to disappear.

New York’s transportation agency, the Metropolitan Transportation Authority, is facing a budget shortfall of more than $16 billion through 2024. “We are going to have to make hard choices no matter what happens here,” the chairman noted in a New York Times article. The pandemic has instilled a fear of gathering and closeness in people that makes it impossible for metropolitan areas to operate business as usual. New York has persevered through great economic setbacks like the 1918 Spanish Flu, the Great Depression, the 1970s financial crisis and 9/11. But recovery takes time, particularly amid a pandemic and recession. And the short-term outlook for office space and commercial real estate in the city doesn’t look very good. Commercial real estate brokers have very low confidence in the market through 2020. Manhattan retail rent is at a 10-year low. The state's top public servant, Governor Andrew Cuomo, even pleaded to wealthy New York City residents sheltering in second homes in upstate New York or Connecticut to come home: “You got to come back!, the governor said in the summer of 2020. “We’ll go to dinner! I’ll buy you a drink! Come over, I’ll cook.”

As middle-class professionals consider leaving New York City for other places, flexibility to work from home, we anticipate an extended period of recovery for the Big Apple. New York will always be an important city because of its geographical location and history, so it will always be able to bounce back. However, we anticipate several years of stagnation and concern in the market before things stabilize.

Sacramento

Sacramento is an appealing market for relocation for a number of reasons. For a family, the cost of living and quality of life make the area intriguing, while the culture, entertainment and education make it a desirable location. For companies looking to expand here, there is a lower cost of doing business in the Sacramento region. Additionally, the access to a more affordable employment base compared to the cost-of-living demands of larger markets and the significantly shorter commute compared to larger California cities like San Francisco and LA. make it a desirable market. Businesses also have access to highly skilled and trained employees, which makes Sacramento appealing for relocation.

Sacramento is the state capital of the fifth largest economy in the world and is a good bet when considering where to pack up and move to in the middle of a pandemic. Sacramento is in many ways the coastal pressure release valve — it is the place people move to so they can escape the expensive coast and enjoy more space. Sacramento gives residents the California lifestyle without the affordability issues that come with San Francisco or LA.

Just like everywhere else in the world, Sacramento has seen some changes to the way business functions and how people live during the pandemic, but nothing major. The tenants in Sacramento have been less impacted by the pandemic than in other municipalities. According to the Sacramento Business Journal, the city had the lowest apartment vacancy rate of all major markets in the state of California and have actually seen a 3.1 percent increase in rent due to the movement of people away from the Bay Area, as of the summer of 2020.

The Sacramento market hasn’t witnessed the dramatic shock to the local economy that some other cities have. While there has been a decreased interest in public transit due to the pandemic, the government sector in the region is on the rise. Sacramento is seeing robust growth and showing no signs of dropping rent prices. The city has benefited economically from the pandemic because people came to the realization that they don’t have to pay big city prices to get a bigger apartment for less in Sacramento.

Salt Lake City

Before the pandemic, Salt Lake City had one of the best economies in the nation, which helped to shield it from the abrupt recession that devastated many other cities. A low unemployment rate and population growth has landed Salt Lake City a ranking among the top metropolitan areas to recover from COVID-19, according to Moody's Analytics. Earlier in 2020, U.S. News referred to the local economy in Salt Lake City as “red hot.”

There is, without a doubt, tremendous interest in moving to Salt Lake City. This has been a trend for the last decade. Since 2010, more than 100,000 residents have moved to the Salt Lake City region. What makes this all the more impressive is the relatively small size of this secondary market: Salt Lake City’s metro area currently has a population of 1.2 million. While the state of Utah has a standard income tax rate, residents pay an average effective rate of just 0.66 percent, putting it in the top 25 percent of affordable states when it comes to property taxes.

A surge in real estate development is bringing more residents to downtown Salt Lake City. They want an urban space to live, work and play. One that is still a fraction of the size of some of the larger cities in states (Salt Lake City’s actual population is just over 200,000). Local city leaders are planning for smart growth, looking to reduce traffic, pollution and commute times. This kind of thinking — putting health, safety and convenience at the forefront for a burgeoning class of professionals — will help propel Salt Lake City into the future as a city that thrives after the pandemic.

Salt Lake City has become popular for a number of reasons. For starters, it is located in the valley of the Wasatch and Oquirrh mountains. Every angle of the city is picturesque and ideal for adventurous, outdoorsy people or anyone looking to be closer to the mountains. Tech companies have taken interest in Salt Lake City and turned it into a hub, and a more affordable one than the Bay Area. The vibrant startup scene creates a young, educated and highly skilled workforce that is very desirable to young adults looking to relocate.

If Salt Lake City and Nashville can continue to grow in a smart way that continues to position them as an affordable alternative to living in primary markets, they will attract more talent and grow their foundations for years to come.

Prediction 4

Better office space for small business owners

Small businesses will climb up the food chain and grab downtown real estate at double-digit discounted rates.

Small businesses in primary markets can especially capitalize on the shifting office landscape. In markets like Chicago, with its iconic Loop, skyscraper occupancy is downsizing and smaller companies can move up the food chain, so to speak. They can get pristine real estate at a better rate — potentially a 15 to 20 percent better rate than before the pandemics. Now, the business has office space in the Willis Tower or Transamerica Building, which they would have never entertained pre-pandemic.

The idea to sign a lease or even purchase an office space during a pandemic might seem counterintuitive: Why take on such a risk during an uncertain time? But that’s the point. To be contrarian during a recession is to be in a position to gain a lot after the recession wears off. Whether it’s a direct monetary gain through an increase in a real estate investment, or if it’s the added brand prestige from a desirable location you wouldn’t otherwise consider renting in outside of a pandemic.

To be sure, it’s a gamble for a smaller business to take on high-end, high-cost real estate during these times. But it could really pay off for those who do it.

Think of this scenario: Instead of one company renting out a space in an iconic area, perhaps multiple tenants rent out a space with a shared vision and create their own kind of co-working space. Within a more desirable space, these small businesses and startups can create space for full-time employees to work or use it as a kind of flex space for employees and contractors depending on the business model. This leads us to our final trend.