We have been searching for office for expansion in past month, I was shocked with the significant drop of rental. $14,000HKD monthly (inclusive) for a 550sq foot fully furnish office in Jervious Street, Sheung Wan.
Back in mid 2020, I stated publicly the commercial real estate demand will encounter sharp drop if there is a paradigm shift on human habit. Empty office buildings. Reduced store hours. Unbelievably low hotel room rates. All are signs of the times in 2020 and there seems the downward trend continue in 2021. The containment measures put in place last year in response to the pandemic shuttered businesses and offices, and dealt a severe blow to the demand for commercial real estate—especially, in the retail, hotel, and office segments.
The effects of the pandemic have been far-reaching in all industries, but it seems clear that Covid-19 has fundamentally changed the way real estate business is conducted. The demand for space has been impacted by social distancing, shutdowns, quarantines, layoffs and remote work. As a result, the face of CRE has changed dramatically.
The potential structural changes in the commercial real estate market due to evolving preferences in our society will change the value forever. Potential structural shifts in CRE demand could significantly lower the fair value of commercial real estate.
Some businesses are going for a blended remote and in-office model. This allows the physical office space to continue playing a role for in-person gatherings where ideas are shared. (In our scenario, we shared a 2200 sq foot space for 4 people and 3 cats)
The effects of COVID-19 on office, commercial space and central business districts are by now fairly clear. Even in places where offices have reopened, signs suggests that few ‘white collar’ workers will fully return to the traditional 9-to-5 day at a commercial office. Recovery for the sector will likely be slow, uneven and erratic.
From Real Estate, AI Adoption and Occupation shift
Our business grow fast last year, mainly due to the fact that our clients has faster adoption of automation and AI, especially in work arenas with high physical proximity. Our clients deployed automation and AI in warehouses, hotels. grocery stores, call centers, and manufacturing plants to reduce workplace density and cope with surges in demand.
The trends accelerated by COVID-19 may spur greater changes in the mix of jobs, we expect the largest negative impact of the pandemic to fall on workers in food/ hospitality service and customer sales and service roles, as well as less-skilled office support roles. Jobs in warehousing and transportation may increase as a result of the growth in e-commerce and the delivery economy, but those increases are unlikely to offset the disruption of many low-wage jobs.
Before the pandemic, net job losses were concentrated in middle-wage occupations in manufacturing and some office work, reflecting automation, and low- and high-wage jobs continued to grow. Nearly all low-wage workers who lost jobs could move into other low-wage occupations—for instance, a hotel marketing worker could move into retail or F&B. Because of the pandemic’s impact on low-wage jobs, we believe that almost all growth in labor demand will occur in high-wage jobs. Going forward, more than half of displaced low-wage workers may need to shift to occupations in higher wage brackets and requiring different skills to remain employed.
Given the expected concentration of job growth in high-wage occupations and declines in low-wage occupations, the scale and nature of workforce transitions required in the years ahead will be challenging. A large-scale transformation is coming.