In the nearly two years since the start of the COVID-19 pandemic, much has changed in commercial real estate with the lines between home and office becoming blurred.
Many companies are downsizing or rightsizing their office space, or going entirely remote, leading to many vacancies in office buildings.
At the same time, the Lehigh Valley apartment rental market has skyrocketed as more people look to move into smaller communities, like those found in this area, as compared to larger urban areas like New York or Philadelphia.
The switch to a remote workspace has allowed much of this migration to happen as people find they no longer have to live near their employer.
But since these potential renters will be working from the apartments they are moving into, apartment property owners need to be mindful of the new needs that are arising.
Larken Associates has two properties in Bethlehem that highlight how real estate managers have had to get creative to meet the changing dynamic.
The Pinnacle Building at 65 E. Elizabeth Ave. Is one example of how the industry has changed.
Several years ago, before the pandemic and before Larken owned the building, the 10-story property was drastically renovated, turning the top six floors from office space into apartments.
Jess Heckman, director of residential asset management for Larken, said the demand for apartments has been growing for years.
“The demand is just insane right now,” she said. “Our occupancy has been great because of the demand.”
In fact, she said like the Pinnacle building, Larken is converting other office spaces into apartments. She said one project in New Jersey has demolished an old office building to be replaced by 250 apartment units.
But, she said, it’s not just a matter of “if you build it, they will come.” Larken is making design changes to the new apartments it constructs to make it easier for tenants to work from home.
“We make sure we have areas set up for working, that there’s an area that is a little separate where they can set up a desk and a computer and use it for office space,” Heckman said.
She said common areas are also being repurposed. Since it’s sometimes difficult to work from home if there are children, or maybe the worker just needs a change of scenery, Larken is turning community room space into an area that’s work friendly.
She said many of their community rooms, like at the Pinnacle, now have Wi-Fi and printers for tenants to work from.
“There is the availability for a change of scenery, but not necessarily with a lot of people, like if you set up at a Starbucks or someplace like that,” she said. “This is really bringing people in having those amenities on site.”
So, what about those offices that are being vacated or downsized?
Rob Marek, executive vice president of commercial real estate for Larken, said 3 West Broad St. in Bethlehem is a good example of how his company used creative thinking to keep the property fully leased.
He said that when a 4,200-square-foot office space in the building was available after the tenant closed its office, he found something besides another corporate client to take the space.
Instead, he filled it with a soon-to-open hibachi restaurant, Steak & Steel Hibachi, and a hair salon, Catalina Dry Bar.
Of course, Marek said offices aren’t being completely abandoned.
“I’ve seen a lot of different kinds of circumstances because of the pandemic,” he said. He said most of the cases are about right sizing. “One business is going remote, but then a different business is taking the space.”
Especially with larger companies, Marek said there has been a great deal of social pressure to continue to let employees work from home, so less space is needed.
However, many of those companies still need a central office space for staff that need to collaborate in person.
In many cases, that just means companies are looking for smaller offices. Marek said Larken has benefited because of companies leaving larger offices in bigger cities and opening smaller offices in regions like Bethlehem.
He said he’s had companies coming from 20,000-square-foot suites into 5,000-square-foot suites and similar transactions.
What companies are looking for in an office space is also changing.
A few years ago, Marek said, open-space-concept offices were all the rage. Now, since the pandemic, that trend has reversed itself and more people want to go back to working in smaller, separate offices rather than a large communal space.
“People are feeling more vulnerable in an open space,” he said.
Other changes companies are looking for include improved HVAC, with air filtration to help prevent the spread of viruses, and more hard surfaces that are easier to clean.
The big trend now is toward coworking space, said Marek.
He said many people no longer have offices to go to but may need a professional space to work out of occasionally.
Larken has been converting some of its properties into coworking space. He said that in one New Jersey property the company is taking a 10,000-square-foot office space and turning it into 15 smaller executive suites. Those spaces usually have a common area such as a kitchen or conference room that all those office tenants can use instead of a formal office.
The industry is changing, and Marek said for property managers to survive, they need to adapt, change and be more creative to stay on top of the evolving demand.