The majority of office workers are facing 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 percent of work activities to the home is a change of scale without much reference in living memory. Major urban metro areas will see key 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 percent 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 percent each).
Without new types of workspace product, the needs of remote workers will continue to clash with the availability and size of current residential units. New housing supply that reacts impulsively by simply offering 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 zoning policy.
The Goldilocks Problem
The rise of remote work means that the home will serve functions it hasn’t traditionally been asked before. This is especially true for apartments, which typically lack the luxury of extra rooms for a dedicated office. In the same survey, Common found that 37 percent of respondents desired a coworking offering in their building.
However, a Goldilocks problem arises regarding unit size where a one-bedroom apartment is too small and limiting but a two-bedroom is too big and inefficient. That conundrum is true for tenants and developers alike. 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 with these more novel solutions. Thus, developers are left with the difficult choice of either ignoring the market’s desire for more space per unit or increasing rents across the board to recover the lost revenue from expanded units.
Developers can approach these issues by introducing new work-friendly residential products, or they can create new vibrant communities that incorporate both private and public sector solutions. But remote workers can’t wait for the long lead times of new construction and these solutions must also address existing stock.
Rather than increase each unit’s square footage by 60 percent, developers can dedicate one floor to co-working space. This tactic is especially viable in recently built Class A properties, which often provide amenity space that can be hit or miss among resident utilization. Creating both living and working spaces establishes two connection points between renters and their buildings and should increase retention.
Another option can be forming a partnership with a nearby coworking outlet. Companies like Daybase, a network of local flexible spaces that presents an office experience 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 against a suburban product.
City-backed zoning interventions
Long-term solutions will rely on city-backed zoning interventions that both mitigate market pressures on developers and tenants, allowing for more vibrant neighborhoods. To address the Goldilocks Problem and ease the tension between more space versus higher rents, cities should incentivize co-working products within new construction. The simplest way to do this is by increasing zoning for products with co-working 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 are necessary to unlocking new opportunities for 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 co-working spaces to occupy ground floor suites would serve the dual purpose of generating new activity in neighborhood retail corridors and addressing the evolving need to offer new workspaces.