on Nov 01, 2021
When 5 Days Becomes 3: Working Solutions for the “New Normal”
Written by Kate Wittels, Partner, HR&A Advisors & Matthew Micksin, Senior Director, Real Estate, Common
The majority of office workers are anticipating a new normal: a hybrid work schedule where only 2-3 days of the week are spent in the office. The implications of this shift on commercial building demand has been widely reported on, including last week in the New York Times and Vox, and the effects on workplace activity, company culture, and a wide array of other office-centric factors have also been analyzed in great depth. But what impacts will this change have on the place where we’ve spent much of the pandemic: our homes?
Shifting 40-60% of work activities to the home is a change of scale without much reference in living memory. Major urban metro areas will see shifts in the size, shape, location, and amenities of residential offerings. In a recent survey of potential renters, Common, the leading residential brand that manages, designs and leases multifamily properties, found that nearly 50% expected to work from both home and the office — with those expecting to either return to the office full-time or remain fully remote as most of the remainder (15% each).
Without new types of workspace product, the needs of remote workers will continue to be unmet by the supply and size of current residential units. New housing that simply offers larger units will deliver fewer homes, exacerbating existing supply shortages and missing this unique opportunity created by changing consumer demands. For the best results, these new products will need to be delivered using innovative strategies from developers, operators, and local land use policymakers.
The Goldilocks Problem
The rise of remote work means that the home will serve functions it hasn’t traditionally been asked to before. This is especially true for apartments, which typically lack the luxury of extra rooms for a dedicated office. In the same survey cited above, Common found that 37% of respondents desired a coworking offering in their residential building.
However, to accommodate coworking in-unit, a one-bedroom apartment is too small, and a two-bedroom is too big, and not just for tenants: additional square footage per unit makes deals more difficult for developers to pencil, as rent per square foot declines each time a bedroom is added. The addition of a bedroom or den area as an office space increases the rent of a unit and uses the space efficiently, but it’s unlikely developers will want to commit 100% of their units to these relatively novel solutions. Thus, developers will be left choosing between ignoring the market’s desire for more space per unit and increasing rents across the board to recover the lost revenue from expanded units.
Developers working alone can and will introduce new work-friendly residential products. We think they are more likely to create truly vibrant communities if they partner with other private and public sector actors. Further, remote workers can’t wait for the long lead times of new construction, so these solutions must address both existing stock and new development.
For existing residential and commercial building stock, developers and operators have three options.
Rather than increasing each unit’s size by as much as 60%, developers can dedicate one floor to coworking space. This approach will be especially viable in recently built Class A properties, which often provide amenity space that can be hit or miss in terms of resident utilization. Creating both living and working spaces establishes two connection points between renters and their buildings and should increase retention.
Another option for developers is to support and partner with a neighborhood coworking outlet. Companies like Daybase, a network of local, flexible spaces that offer office space close to home, offer workers more options to work from close to home rather than in their home. A readily available coworking option in an attractive location generates a higher price per square foot for residential developers and competes well with a suburban product.
City-backed zoning interventions
Long-term solutions will rely on City-backed land use interventions that both mitigate market pressures on developers and tenants and allow for more vibrant neighborhoods. To address the Goldilocks Problem and ease the tension between more space versus higher rents, cities should incentivize coworking products in new construction.
In urban areas where demand is high, the simplest way to do this is by increasing permissible height and bulk for products with coworking components and exempting that dedicated floor area. For new developments in high-density urban cores, zoning to allow flex workspace without reducing buildable residential square footage would help lower the cost burden, which work-from-home companies are shifting onto their employees.
These zoning changes can also help unlock new opportunities in neighborhoods grappling with the changing role of retail corridors. In many neighborhood retail areas, ground floor office use is prohibited, and lower densities limit the supply of suitable office space. Allowing coworking spaces to occupy ground floor suites – perhaps paired with design regulation to ensure a safe and lively street experience – would serve the dual purpose of generating new activity in neighborhood retail corridors and addressing the evolving need to offer new workspaces.