Will Coronavirus Spark A Revolution In CRE Thinking?
Commercial real estate will survive the coronavirus crisis, but it may not look the same on the other side.
The habits that Americans are being forced into — working from home, collaborating digitally — could fundamentally alter the way U.S. businesses inhabit and lease office space. And CRE companies, many of which have fallen behind in terms of technological transformation, may finally come around to the importance of going digital.
"When you can't physically go into the office, you start rethinking your relationship to the workplace and what you do there," said CohnReznick Advisory Partner Paul Ricci, who leads the firm's national data and technology practice. "This crisis has really opened people's eyes to some of their inefficient practices and how they can be streamlined."
Ricci has overseen business transformations across industries, including commercial real estate, and thinks that now is a better time than any to make strides that will help companies recover and thrive in the future. Bisnow sat down with Ricci to discuss what he is currently counseling his clients to do and what CRE may look like after the recovery.
Bisnow: It's such a hectic time for so many companies. Why do you think now is the time to make changes to business operations?
Ricci: To keep their businesses running, companies are going to have to separate work from physical spaces. Especially in industries like real estate, which haven't always been quick to embrace new technology, this crisis has exposed manual processes that could be automated.
For instance, some of the CRE companies I've worked with over the years still physically cut checks in the office. If your printers can't get into the office, your company can't pay any employees, partners or vendors. Companies can act now to bring payroll online and automate accounts payable to keep payments timely without risking employees' health by asking them to come into the office. We're not just talking about changes that will improve owners' bottom lines, these are often changes that have to be made for business to continue at all.
Bisnow: Can companies actually make these changes remotely, or will they have to wait until they head back to the office?
Ricci: There are tons of services out there that can be implemented remotely to help businesses go digital. That could include videoconferencing software, project management, workforce enablement, automated workflow tools, and other collaboration software, and even back-office services like electronic payment processing and robotic process automation that automate mundane, repetitive tasks. Businesses need the most out of their employees right now, and they won't get that without those digital tools.
Bisnow: Are companies going to realize that they don't need all that office space if they're working effectively from home?
Ricci: Yes, companies are going to start thinking very differently about their office space. I look at how Amazon changed real estate: Retailers had to rethink and reposition their brick-and-mortar strip centers to offer experiences as well as goods and learn to sell digitally. That same change is going to happen to office space.
Some of the most advanced work we do involves implementing analytics to track productivity and performance across entire companies. I think companies with those tools are going to see that their employees are just as diligent and efficient at home. That could shrink how much office space they sign for on their next lease, or if they sign a lease at all. The traditional seven-year lease with annual step-ups may start losing out to "space as a service" models.
Bisnow: Is the coronavirus going to destroy the office asset class as we know it?
Ricci: Not quite. Being together in the same room is still very important for building your culture and trust within teams, so I don't think any companies are going to be getting rid of their offices entirely. But I think we're going to see companies use their offices differently.
Digital work is going to become more widespread, starting with the large enterprises and working into the middle market and smaller companies. Not everyone will be in the office every day, and the spaces themselves are going to have to be flexible to accommodate a fluctuating group of employees.
I don't mean that every office is going to look like a WeWork space — this isn't about doing the same things differently, it's about doing totally different things. Businesses are going to look more critically at their spaces and devise ways to use them more intentionally.
Bisnow: Does that kind of thinking have value outside of this crisis?
Ricci: Absolutely. I got a great email a few days ago from a client thanking us for our work. We started a big business transformation project for them three years ago, where we helped them build a transformation strategy, overhaul their back-office practices, automate manual processes and implement collaboration tools. The CIO thanked us because she said that while her business was feeling some pain, it was a lot less than it would have been without that transformation work. There is real, permanent value in these changes.
This feature was produced in collaboration between the Bisnow Branded Content Studio and CohnReznick. Bisnow news staff was not involved in the production of this content.
To reach out directly to the CohnReznick subject matter expert in this article, you can use the following link: Paul Ricci