Learning from the Past: A Historical Perspective on Commercial Real Estate Amid the WFH Revolution”
June 23, 2023
Commercial real estate is an industry forged and formed by change. Over the past century, it has navigated numerous societal and economic shifts, from industrialization and urbanization to digitization. Today, we stand on the brink of another significant evolution: the rise of work-from-home (WFH) practices.
The COVID-19 pandemic has showcased the viability of WFH, pushing businesses to reconsider their reliance on traditional office spaces. This trend is perceived by some as a potential threat to the future of commercial real estate. However, historical perspective and current market observations suggest that it’s an opportunity to reimagine our workspaces and adapt to the new normal.
A detailed examination of past market trends reveals how commercial real estate has continuously adapted to societal and economic shifts, providing us valuable lessons for the WFH era.
Industrialization and Urbanization:
In the early 20th century, the shift from agrarian society to industrialized economies significantly impacted real estate. Factories moved from crowded city centers to the suburbs where land was cheaper and more plentiful. New types of commercial zones emerged, transforming rural landscapes into industrial suburbs. Likewise, the increased concentration of people in urban areas spurred the development of commercial office buildings, marking the birth of the modern office sector.
The Rise of Skyscrapers:
Around the same time, technological advancements such as steel-frame construction and elevators enabled the construction of skyscrapers. Land scarcity and high prices in urban business districts drove the demand for vertical expansion. Skyscrapers like the Empire State Building became symbols of economic power and modernity. This was a clear demonstration of commercial real estate’s adaptability and innovative response to market needs and technological progress.
Suburbanization and the Mall Era:
Post-World War II saw the rise of suburbanization. The growth of the middle class and the “American Dream” of owning a house led to a massive migration from cities to suburbs. This gave birth to the era of shopping malls. Shopping centers became social hubs in suburban communities, leading to the boom of retail real estate in the mid-to-late 20th century.
The Internet Age and the ‘Death’ of Retail:
The advent of the internet and the explosion of e-commerce at the turn of the 21st century brought predictions of the “death of retail.” While e-commerce did disrupt traditional retail, it didn’t eliminate the need for physical stores. Instead, it spurred retail’s evolution. Brick-and-mortar stores focused on offering experiences that couldn’t be replicated online. At the same time, the demand for warehouses and data centers increased dramatically, creating a new commercial real estate asset class.
Each of these historical phases underscores the industry’s inherent adaptability. Just as commercial real estate evolved in response to these shifts, it will adapt and find opportunities amidst the rise of WFH. It’s not about survival but about transformation, innovation, and seizing the opportunities that come with change.
The Future of Office Spaces:
The immediate impact of WFH is the reduced demand for office spaces, particularly in dense urban areas. However, it’s essential to recognize that companies still value physical spaces for fostering collaboration, building culture, and sparking creativity. The office of the future will cater to these needs, serving as a hub for team interactions and company identity, rather than just a place to work.
Furthermore, as businesses decentralize and employees move to suburban or rural areas, demand for commercial real estate in these regions is likely to grow. Smaller, more flexible workspaces close to residential neighborhoods could become popular, offering companies a lower-cost, lower-density solution and giving employees a dedicated space for work.
Implications for Other Real Estate Sectors:
The WFH trend also presents opportunities in other real estate sectors. Residential properties with home offices are becoming more desirable, driving demand in suburban and rural housing markets. Retail could see a resurgence in local neighborhoods as people working from home increase their local spending. Industrial real estate could continue its growth, fueled by e-commerce and the need for last-mile delivery centers closer to consumers.
Resilience through Adaptability:
As we navigate this changing landscape, the future of commercial real estate hinges on our capacity to adapt, innovate, and redefine traditional norms. We are not merely passive recipients of change; we are active participants who shape our industry’s destiny.
In a sense, the commercial real estate industry’s past 100 years have prepared us for this moment. We’ve seen transformations before, and we have turned them into opportunities for growth and innovation. The rise of WFH is another such transformation, and it is our responsibility to harness its potential to create an even more robust and resilient real estate industry.
The words of Charles Darwin have never been more relevant: “It is not the strongest of the species that survives, nor the most intelligent; it is the one most adaptable to change.” As we move forward into this new era, let us remember that our strength lies in our adaptability and our ability to see opportunities where others see obstacles.
At Dolfin, we understand the importance of staying ahead in the competitive real estate market, and we’re here to help. Our tenant improvement financing solutions are tailored to the unique needs of commercial landlords and tenants, ensuring you have the resources to succeed in today’s challenging landscape.
Don’t let the obstacles of commercial real estate hold you back. Contact Dolfin today to learn how our cost-effective tenant improvement financing solutions can help you adapt, grow, and thrive. With our expert support, you can build on the rich history of your business and create a bright future. Interested in learning more about Tenant Improvements? Download our free White Paper.