Remote work represents a paradigm shift that’s reshaping how we live, work, and invest in real estate. While there was a suspicion that it was only a pandemic-era trend, the truth is, we were shifting towards a more remote workforce even before the worst of Covid-19 fell upon us. More and more companies were allowing their employees to work from home.
The trend is only growing. According to the Pew Research Center, around 22 million employed adults work from home 100 percent of the time while they’re doing their jobs. Millions of others maintain a hybrid home/office schedule. Many jobs are advertised as completely remote. Some companies have given up their headquarters entirely, fully expecting their team members to work from wherever they want.
This has had a huge impact on location preferences. And, California commercial real estate investors are beginning to notice how remote work has impacted location preferences, especially in markets that have been historically competitive when it comes to commercial property - like California.
As commercial property management experts in California, the Bell Properties Commercial Real Estate team has been studying location preference trends and working with investors across the commercial space to understand what tenants are looking for, and how we can help you position yourself to see the remote work trend as more of an opportunity than a challenge.
Why Remote Work is So Popular
Some people say they prefer remote work because they’re more productive. There are less distractions. Less pressure to socialize with coworkers. Some people will say that traffic and commuting is the worst part about going to work in-person, and remote work solves that problem.
Remote workers also prefer the flexibility. Employees have found they can more easily balance their work life and the rest of their life when they don’t have to navigate the complexity of getting to and from the office or the expectation that they’ll stay there for eight hours out of every day.
Companies are also allowing for and even promoting remote work because they want to recruit the best talent. The ideal workers would prefer to work on their own schedule and from their own homes, and so it’s offered as an incentive.
How Remote Work Impacts Location Preferences
If your employer is in a metro downtown area Los Angeles or San Francisco, you once had to decide where to live that would get you downtown in a reasonable amount of time. That’s no longer an issue for a lot of workers. Now, they can be employed by a company in LA or San Francisco or Chicago and live in the desert or the mountains or by the beach. They can move to Austin or Denver or anywhere in Florida without giving up their high-paying job opportunities.
Remote workers can live wherever they want.
Let’s take a look at what that means for a California commercial real estate investor.
Decentralization of Office Spaces
One of the most significant changes has been the decentralization of office spaces. Previously, companies flocked to city centers, especially in a large and reaching metropolis like California. Now, the demand for centralized office space has waned. Companies are opting for smaller, flexible workspaces in more suburban areas, closer to where their employees live and in areas where they can find lower rent prices.
This trend is driving demand in less traditional commercial real estate locations. Those high-rise buildings in California which once offered prime office space at peak rental prices are not exactly in high demand anymore. This is not to say that they’ve all closed up shop. Plenty of big companies still need their desirable office suites. In terms of new investments, however, we’re not seeing a lot of commercial investors in California ask to see the swankiest office space downtown. There’s just not as much demand for it.
Rise in Satellite Offices
Another trend gaining traction is the establishment of satellite offices. Instead of maintaining one large headquarters, companies are opening smaller offices in various locations. This allows employees the flexibility to choose where they want to work from. For commercial real estate investors, this means opportunities are no longer confined to downtown LA but extend to its outlying neighborhoods.
Look for opportunities to buy smaller spaces in diverse areas if you want to take advantage of this trend. There’s more inventory and better price points. You’ll likely have an easier time keeping these spaces occupied, as well.
Increased Demand for Mixed-Use Developments
With the lines between work and life blurring, there's a growing demand for mixed-use developments that combine residential, commercial, and recreational spaces. Such developments allow people to live, work, and play without having to commute long distances. In California, this trend is visible in neighborhoods like Downtown LA and Culver City, where mixed-use properties are flourishing.
Look for opportunities to buy into these types of developments. You’ll find you can charge high rents, attract great tenants from a variety of industries, and enjoy high-profile locations that receive a lot of traffic from people day and night.
Prepare to Offer Flexible Leasing Options
The uncertainty brought about by the pandemic has made businesses more cautious about long-term commitments. Flexible leasing options have become more attractive, with shorter lease terms and adaptable spaces being highly sought after. Commercial real estate investors who can offer these flexible arrangements stand to benefit significantly in this evolving market.
One of the benefits to investing in commercial instead of residential properties is the longer lease agreement that tends to be friendlier to owners and investors. However, you may need to consider offering shorter lease terms. This isn’t necessarily bad for you. It will give you the opportunity to adjust your rental rates and lease terms according to the competition and the market.
Commercial Real Estate in California
California remains a vibrant market for commercial real estate, even in a market that’s challenged by the work-from-home reality. But, the dynamics are shifting. You’ll remain successful and profitable when you can keep up with those shifts. Here are some key insights we have for investors as your best California commercial property management resource:
Don’t be Surprised by Suburban Growth
Prepare for suburban areas to continue growing in popularity. Bell Properties is seeing increased interest from businesses looking to establish satellite offices or more flexible working environments. Areas like Santa Monica, Pasadena, and Glendale are becoming hotspots for commercial real estate investments. While California is still the place to be for a lot of potential commercial tenants, you might want to start thinking outside of the city limits, especially if you’re hoping to rent out office space, medical space, and even retail storefronts.
Expect a Soaring Demand for Tech-Enabled Spaces
In today's digital age, tech-enabled office spaces are no longer a luxury but a necessity. Properties equipped with high-speed internet, smart infrastructure, and advanced security systems are attracting more tenants. In California, tech companies and startups are particularly keen on such spaces. Make sure you can provide the tech and the infrastructure that these commercial tenants need, otherwise they’ll be quick to look elsewhere
Sustainable and Green Buildings
Sustainability is becoming a crucial factor for both investors and tenants. Green buildings that offer energy efficiency, environmentally friendly materials, and sustainable practices are in high demand. LEED-certified buildings in LA are attracting a significant premium, reflecting this growing trend.
Where to Invest: Consider Co-Working Spaces
California has the highest number of co-working spaces in the country.
When you decide to invest in a co-working space, you’re showing that you understand the impact remote work has had on the market and on the preferences of people who still have a job to do, even if it’s not at a traditional office.
This is a good way to turn a challenge into an opportunity as a commercial real estate investor in California. Look for an opportunity to buy a co-working space and enjoy long-term profits, an evolving and steady stream of tenants and customers, and the satisfaction of knowing you’re ahead of the pack when it comes to knowing which way the market is trending. Before you buy, consider:
Location. You want your space to be accessible to people who don’t miss commuting to the office but do want a collaborative environment that isn’t their home.
Membership. Your business model can be one where people join a membership, pay per usage, or entire companies are invited to take up space in your property.
Increasing margins. Make sure you’ll know how to increase profitability and keep expenses to a minimum while attracting new business and retaining existing business.
Remote work is here to stay, and its influence on commercial real estate is undeniable. For investors, understanding the shifting location preferences and adapting to new trends is essential for capitalizing on opportunities in the California commercial real estate market.
We can help you make some smart decisions around investing against the backdrop of a work-from-home reality. Please contact us at Bell Properties Commercial Real Estate.
