Basement living - can you dig it?

Covid-19 has changed everything and smart commercial property investors will be reveiwing their portfolios closely.

I’m generally wary of claims about trends that will revolutionise the way something is done. That’s not to say that revolutions don’t happen – indeed, over the past 20 years, technology has transformed the way we do some things beyond all recognition – but more often than not, such claims are more about selling a new product or service than they are about identifying a truly revolutionary new trend.

Claims around the way that we work are an example of this. For decades, the traditional model for housing staff has been for a business to lease (or sometimes buy) a building and co-locate all employees in the same place.

Within this model there have been innovations. In the 1980s we saw a move away from individual offices to open plan offices, where a large number of staff were located in open spaces where they could more easily communicate with one another. In the 1990s and 2000s we saw a move toward hotdesking, where the emphasis moved even further away from the idea of having one’s own space toward a shared model of working.

But while these trends were both about finding ways for people to work more effectively, neither of them reduced the space required by businesses. But is that about to change?

Over the last couple of decades there has been increasing talk of the minitrends shaping the way we do business. These include the evolution of contracting as an alternative to employment; the growing focus on outputs (what people produce) rather than inputs (how long they take to produce it); and increasing social and political pressure to encourage employers to recognise flexible work practices around parental leave, remote working and reduced work hours.

But while all of these trends are real – the move toward incorporating them into the workplace has been slow. Until this year.

When it comes to the way that we work, Covid-19 has changed everything.

Understandably, CBDs in our towns and cities became ghost towns during the first lockdown, but it’s what happened after that which is probably a clearer sign of things to come. While the employees of businesses started returning to their offices once they were allowed to, few have returned to a "completely normal" pattern of working. Even prior to the second lockdown, in Auckland, staff were (often enthusiastically) taking advantage of a more understanding approach, by employers, and many offices have adopted much more flexible policies which mean that staff work some days in the office and some days from home.

It would be easy to think that these changes are a result of the pandemic and that things will return to normal once we have a vaccine – but I’m not so sure that’s true. Increasingly, as I talk to employers and business people, I’m hearings stories of how they regret re-signing leases in the year prior to Covid, how the new approach to working is proving to be successful for them and their staff, and how they are fundamentally reviewing the way in which they operate their businesses, long term.

Whether this is the advance guard of a new and permanent trend, only time will tell, but smart commercial property investors will already be looking at their portfolios and thinking about how they need to adapt in the years ahead.

And this is where it gets interesting. For years, commercial property was seen as the safer, stronger investment, and residential was the preserve of Mums and Dads. That's no longer the case. Commercial property developers are increasingly looking at large residential properties with development potential. In the months since Covid-19 hit New Zealand developers and investors have been out in force and driving prices at auctions.

That doesn't mean commercial property is a bust you only have to look at the big returns on supermarkets and industrial warehouses to know the sector has plenty of juice left in the tank - but residential investment is no longer the poorer relation.