Last year was the year the return to the office ended. Whether you look at surveys of working from home levels or swipes into offices, the trend was flat through the year. Before the pandemic in the US, the average office worker spent less than one in ten days at home. That has now stabilised at approximately three in ten. Hybrid work is here to stay.
This creates profound and novel challenges for office demand. However, facing and adapting to structural difficulties is not new in real estate. The previous decade’s retail sector provides a compelling case study. The rise of e-commerce revolutionised consumer shopping habits, offering unprecedented convenience and variety. This seismic shift led to reduced foot traffic and sales in physical stores, impacting the values of retail properties.
Yet, amid these struggles, a noteworthy variance in portfolio performance emerged. Some investors successfully repositioned their assets and adapted their strategies, delivering robust returns amid the so-called retail apocalypse. What can we learn from those who effectively navigated retail’s structural challenges in the 2010s to inform office owners in the 2020s? Here are three key take-aways.
1. Adapt to the new purpose of physical space
In the era preceding e-commerce, retail stores primarily served as functional transaction points. Consumers visited these spaces to examine, try, and compare products, but fundamentally, these stores offered a practical solution to connect goods with consumers. However, the rise of e-commerce catalysed a significant shift in the role of the physical store, transforming it into a space for product discovery and experience rather than merely the final point of sale.
As online shopping burgeoned, retail spaces began focusing on offering unique, in-store experiences that the digital realm couldn’t replicate. This included personalised services, events, workshops, and creating immersive brand experiences. Mall owners rethought their tenant mix, blending retail with leisure to include more cafes, restaurants, and entertainment spaces. Retailers shifted their rent rationale; they were no longer paying merely for transaction space but for opportunities to connect with customers, elevate their brand, and deepen relationships.
