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Centralized Cash, Less Density And Brand-Level Messages: Here's How CRE May Change After This Pandemic

The ongoing coronavirus pandemic will force commercial real estate to make significant structural changes in order to prepare for a new normal, McKinsey & Co. said in a report.

Empty Office

As many of the country's offices and storefronts remain unoccupied and rent collection stays uncertain, the global management consulting firm laid out several measures that it said commercial real estate might need to adopt or accelerate. Those include centralizing cash management and operator "overcommunication."

“Beyond the immediate challenge, the longer this crisis persists, the more likely we are to see transformative and lasting changes in behavior,” the company said.

“To respond to the current and urgent threat of COVID-19, and to lay the groundwork to deal with what may be permanent changes for the industry after the crisis, real estate leaders must take action now.”

For one, a multiyear movement toward open-office layouts and general densification might reverse, both as preferences change and building codes and regulations are amended around things like SF per person. 

Some market players have already been adapting. Cushman & Wakefield has already debuted a new workplace concept called Six Feet Office. Based on work with thousands of Chinese organizations getting back to work following the country's wrenching battle with coronavirus, C&W has crafted a more spacious design that stresses the importance of quality air filtration in office buildings

WeWork, too is, embarking on changes to its offices, including new capacities in meeting rooms, the Washington Post reports

For CRE owners and operators themselves, McKinsey said companies may start centralizing what are often decentralized, property-level cash management systems. 

Similarly, it said it expects an existing trend of communicating with occupants as a company-level brand, rather than as a property-level brand, to accelerate.

"Not only are such changes the right thing to do — they’re also good business: tenants and users of space will remember the effort, and the trust built throughout the crisis will go a long way toward protecting relationships and value," the company said in its report. 

McKinsey said it also expects CRE companies to intensify a move toward the use of digital and advanced analytics as ways to enhance tenant experience and attraction, asset valuation and lease negotiation. More utilization of behavioral data could give owners greater insights into the economic and pandemic crises' effects on certain tenants versus others.

"These perspectives can inform highly targeted decisions, rather than a one-action-fits-all-tenants approach," the company said.

Some changing facets of certain segments of CRE could be less flexible, according to McKinsey. In China, some retail spending that turned into e-commerce during the outbreak has stayed as e-commerce since, accelerating online shopping's growing market share.

"In the medium- to long-term, the changed behaviors forced upon the industry will have likely altered the way consumers and businesses use and interact with real estate," McKinsey said. "The critical question is, which of these changes will stick?"