Those are among the key findings from a national real estate report by the Urban Land Institute and corporate accounting consultants PricewaterhouseCoopers.
The Urban Land Institute’s 111-page “Emerging Trends in Real Estate 2022” report surveyed 1,700 real estate owners, developers, asset managers and other industry professionals and found that nationally, overall occupancy rates and rents fell less drastically during the pandemic than during even modest previous recessions.
Nevertheless, a separate market report from the Greater St. Paul Building Owners and Managers Association found that office occupancy rates in downtown St. Paul fell last year from 91 percent to 89 percent, a likely reflection of the pandemic-era economy and its turn toward remote work.
Residential growth continues. As of August, according to Maxfield Research, downtown St. Paul was home to 10,572 people, a 117 percent increase over the 4,800 residents living there in 2010, and up from 10,298 residents last year. Downtown apartments had a vacancy rate of 9.6 percent, up from 7.2 percent a year ago.
As measured by the National Bureau of Economic Research, the recession is over, and has been for more than a year. The economic downturn — the shortest on record — lasted two months, officially ending in April 2020, and experts predict jobs may recover to pre-COVID levels by 2022.
But the workplace won’t be the same, according to the Urban Land Institute.
Industry officials said hybrid work will transform offices, with companies considering whether to repurpose their extra real estate or downsize entirely as workers go remote for at least part of the week. “The pandemic revealed hitherto unknown reservoirs of flexibility in how the private sector could function,” reads the ULI report, which also highlighted increased shopping from home.
The impact on square footage, however, could be a wash if companies decide to retain a dedicated workspace for each employee instead of shared spaces, or give remaining workers more room to spread out. Corporate workplace needs will evolve in other ways as drugmakers and the life-sciences industry fuel demand for new lab spaces.
Real estate experts say that without government and private sector intervention, racial and socioeconomic housing gaps will widen. More people may move to affordable smaller cities and suburbs as companies incorporate remote work permanently, with southern cities such as Nashville, Tenn.; Miami, Phoenix, Charlotte, N.C.; and Austin, Texas, being top draws. “The pandemic recession did nothing to release steam from white-hot housing markets,” the report notes.
Some real estate professionals predict that 18-to-30 year-olds who delayed moving to cities during the pandemic, will soon swarm in, boosting housing prices, even as suburbs regain allure.
When going into the office isn’t part of the daily routine, more workers appear willing to live farther distances from their workplaces. A Zillow study found that home prices in many communities with longer commutes are going up faster than residential areas located closer in toward employers.
Meanwhile, the annual number of natural disasters more than doubled from 1980 to 2016, and has increased since then, a sign of environmental degradation that the private sector is becoming increasingly aware of. Still, many individual developers see that problem as so large they’re resistant to doing more than the minimum to receive an environmental certification. Buildings account for more than 40 percent of global energy use and carbon emissions, according to international climate studies cited in the report.
Some large real estate companies are assessing the climate risk of their portfolios by relying upon climate-risk analytics consultants and software, an emerging cottage industry that experts said still lacks shared standards and metrics. More information is online at uli.org.