Lecture Notes: Business Owner Perspective on Real Estate Post-COVID

Overview

Focus on the business owner's perspective regarding renting properties.
Excludes landlord, property management, and ownership perspectives.
Discusses impact on three categories of space: office, industrial, and research lab facilities.

Impact of COVID-19:
- In 2020, employees shifted to remote work due to the pandemic.
- Internet and tools like Zoom enabled productivity from home quickly.
- CEOs and business owners adapted to remote working positively.
- Challenges in getting employees back to office due to behavioral changes and relocation.
Hybrid Working Trends:
- Many corporations lack formal return-to-office policies.
- Over 50% of companies are laissez-faire about remote working.
- Productivity has not decreased, leading to a preference for hybrid models.
- Enforcement of return policies is largely ineffective.
Office Space Demand:
- Companies need less office space; many are not renewing leases or downsizing.
- 5 years of lease expirations have led to an increase in available office space.
- Future outlook: More space to be vacated, especially with upcoming lease expirations.
- High availability rates in metro areas indicate a tenant market.
- Red zone for landlords when availability exceeds 20%.

Impact of COVID-19:
- Shift to online consumer purchases increased demand for large industrial spaces.
- Government stimulus increased consumer spending online.
Developer Response:
- Large-scale development of industrial buildings in 2021-2024.
- Focus on Sun Belt regions like Inland Empire, Phoenix, Dallas, Atlanta, Denver.
Market Shift:
- By 2023, consumer behavior normalized, and online sales reached equilibrium.
- Amazon and others have excess space, leading to subleasing.
- Transition towards owning real estate and custom-built multi-level facilities.
- The supply of warehouse space has surpassed demand leading to increased availability.

Office Space Availability:
- Most metro areas above 20%, some as high as 33% (e.g., San Francisco).
- Few areas like San Diego, Orange County, Miami below 20%.
Industrial Space Availability:
- Greater than office space; 250 million square feet available for sublease.
- Developers overbuilt in anticipation of continued e-commerce growth.

The real estate market, particularly office and industrial, is undergoing significant changes post-COVID.
Businesses are adjusting to new norms in terms of space utilization and working models.
The market dynamics favor tenants due to high availability and changing needs.