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3 Ways The Pandemic Is Reshaping Commercial Real Estate

By Andrew McIntyre · April 16, 2021, 7:02 PM EDT

As the COVID-19 vaccine rollout continues, companies are making plans to have some of their employees return to the office while also scrambling to figure out what brick-and-mortar real estate will look like in the post-pandemic world.

Experts say landlords and tenants are largely avoiding undertaking major structural changes to buildings in cases where a lease is not yet due, opting to instead wait until the end of the lease and reassess. The question of office layout remains tricky, since it's unclear what sort of space companies will need in the future, once their leases do come due.

While office layout is one consideration, owners are also looking at ways to upgrade their buildings on both the technology and the heating, ventilating and air conditioning, or HVAC, fronts, all with the pandemic and health and safety in mind, according to lawyers.

Here, Law360 looks at three ways the pandemic is reshaping the commercial real estate sector.

Question of Tenants' Space Needs Remains Open

As landlords, tenants and developers try to get a sense of the future of office space, parties are largely in a wait-and-see mode, although experts say it's likely there will be an overall reduction of office space as more employees work from home permanently.

"There's a lot of speculation about what tenants are going to want," said Seth Weissman, a partner at Jeffer Mangels Butler & Mitchell LLP. "There is no question that there's going to be some consolidation of space. People have learned they don't need as much space. Some people may embrace the hybrid work environment."

In reaction to that uncertainty, developers in turn are trying to be nimble when it comes to building new office space.

Andrew Hellinger, principal at Urban-X Group LLC, recently completed an approximately 2.2 million-square-foot project in Miami called River Landing Shops & Residences. Plans had called for a movie theater, but the company amid the pandemic opted instead for office space where the movie theater would have been and consciously left open office floor plans in an effort to give tenants flexibility, given the uncertainties that the COVID-19 crisis is posing.

"A large floor plate allows a tenant to have a really large blank canvas to design. It seems like [tenants are] looking for more open space," Hellinger said. "An open floor plan design really allows us to play with how that is used as employers think about what's best for their employees."

Indeed, such flexibility allows for developers to be able to offer various setups for companies, including a shared desk model that many companies are currently considering.

"I can foresee a future where hot desking and shared space becomes the norm in industries that have not done it to date," said Simon Adams, a partner at Nossaman LLP. "There is a level of wait and see before people will commit capital to make significant adjustments to the interior of their ... buildings."

Certain Upgrades Are Likely

While some companies are in a holding pattern on the question of office layout, experts predict certain health and safety changes are likely to come sooner in response to the pandemic.

Owners are looking at the issue of air circulation and are also seeking to install more touchless technology, according to experts.

"What we learned is there are actually touchless toilet paper dispensers now," Hellinger said, contrasting that with other common touchless features such as automatic soap dispensers. "We learned there are things that you can put into your air conditioning system to help purify the air. Most of the experts are recommending that instead of general paper filters, you use charcoal filters."

Doors are also getting upgrades with touchless access systems, said John Goldstein, an officer at Greensfelder Hemker & Gale PC.

On the question of HVAC upgrades, Weissman said that while parties may want the space to be up to hospital grade in terms of HVAC, "the landlord may not be able to do that quickly," given that there are time issues and it's expensive.

Still, many office buildings have already gotten significant upgrades, HVAC and otherwise.

"Building services and systems will certainly be upgraded. Some tenants will require it of landlords. Top Class A buildings have already received millions of millions of dollars of upgrades even while people continue to work from home," Adams said. "Landlords have already committed that capital, knowing it's going to be required."

Liability and Privacy Remain Concerns
 
Building owners continue to be conscious about liability in the event that a worker gets sick on the job and is able to prove that the company was responsible for the illness, and they are taking various steps on that front, experts say.

"There is always a concern from an employer's standpoint that they could be liable for something," Weissman said, pointing particularly to concerns "about allegations that someone got sick in the workplace."

One way owners are reacting is by limiting the number of people in buildings, according to lawyers.

"If too many people are coming in on Monday, [a building's manager] might say, 'Can you come in on Tuesday so that we don't have too many people in the office?'" Goldstein said.

But there's also the question of the use of technology. Goldstein said some companies are considering using technology that tracks the locations of employees in a building, although that's only at the discussion phase at this point, he said.

And on that front, there are all manner of privacy concerns, since that technology could involve a facial recognition component.

"There are a lot of open legal questions," Goldstein said. "Can an employer require that you use this technology? What rights does an employee have? Do these things disappear? Is there a record kept?"

Owners are additionally looking into the possibility of installing scanners that check for body temperature, Adams said.

"Things are changing rapidly, and I expect more technology to roll out on the sensing ... side of it," Goldstein said.

--Editing by Emily Kokoll and Daniel King.

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