The Southwest Real Estate Industry Adapts to Changes Accelerated by COVID-19

As PwC’s managing partner in the Southwest, I have the unique opportunity to speak with clients across a variety of industries on a regular basis. As part of these conversations, we frequently touch on the challenges they’re facing and the issues that are top of mind. One subject that seems to come up consistently these days is around real estate — and how COVID-19 has accelerated many existing trends while also spawning new ones. I had the pleasure of sitting down (virtually!) with our Southwest Real Estate Leader, Sam Melehani, to unpack some of these trends and to dig into what they mean for our market.

Stefanie: Sam, so good to chat with you about a topic that seems to be top of mind for so many of us these days. When it comes to real estate, what are the biggest trends that you’re seeing in the Southwest? Anything that has surprised you?

Sam: Thanks Stefanie. I couldn’t agree more. I get questions everyday about how real estate is trainsforming and what that means for the future of work and business. When I speak with our clients in the market, it’s clear that the biggest trends are in relation to how the real estate industry is approaching technology and how health and safety are critical drivers as we weigh decisions around the best ways to use our spaces moving forward.

Stefanie: That’s interesting. Let’s unpack the technology side of things. What are you seeing there?

Sam: When we think about the real estate industry traditionally, it’s been one of the slower adopters of technology. But today we’re seeing dramatic changes to tech’s impact on driving an experience through real estate. And use of tech can also lead to cost savings in the long run, which is a trend we’re seeing in growing markets where there’s a lot of new construction, like Salt Lake and Denver to name a few. So it’s a nice double-whammy, if you will, enhancing experiences while driving cost efficiencies in the long run. 

Stefanie: Can you share a few examples of what you mean by that? Perhaps some examples of how our real estate clients in the Southwest are using technology?

Sam: Well, one example is that we’re now seeing landlords experiment with proximity technology for tenant’s to for example unlock their doors, or they’re using technology to improve the experience of living in a space in multifamily real estate. This bleeds seamlessly into the COVID-19 spurred work-from-home reality, which has accelerated these tech trends as we see higher demand for smart technology, touchless controls, motion sensor lights, voice commands and the like. We see that newer builds have clear advantages in this space and that they’re also using these advances in tech to think about the best ways to optimize indoor health in safety and making the real estate more attractive to the prospective tenants. 

Stefanie: Safety is, of course, top of mind for all of us and I know we’re having these conversations not just with our clients and communities but in regards to our own eventual return to the office at PwC. What are you seeing on the real estate side to address this?

Sam: It’s definitely a hot topic, and of course there are a lot of challenges and considerations here, including upfront costs as well as operating costs involved in really using technology to create cleaner and safer buildings. This means making updates that include better air filtration systems, touchless entry, sensors, sanitizing stations, and other tools that help to minimize physical contact with shared spaces and surfaces. There are also of course peripheral impacts of these changes to consider — usually a dramatic increase in automation can mean higher use of electricity and a greater impact on the environment, which is a topic that is top of mind certainly here in the Southwest. So there’s also this juggling act: how do you invest in technology to make spaces cleaner and safer and more automated, while also weighing those changes against environmental goals, and the ultimate value proposition of having a space that is competitive and usable in this market.

Stefanie: So it sounds like overall there’s a shift — a new thinking about how well-being is impacting the way that buildings are being designed. But I guess that’s under the assumption that folks are going back to the office. What about the rise of remote work and working-from-home — how are you seeing that impact office spaces and office leases in the Southwest?

Sam: It’s definitely transforming the way that we’re thinking about spaces in the traditional sense. In our recent Emerging Trends in Real Estate report 94% of real estate professionals agreed that companies will allow employees to work remotely at least part of the time in the future. So there’s a bit of a hybrid situation going on — some businesses are shrinking their footprints to save on cost, while others are actually expanding spaces to have enough room to meet and collaborate and innovate in person while still complying with social distancing measures. And those are the same people who are investing in property technologies to really create that “office space of the future.” Different industries or job types have different needs, of course, and while some can continue to work remotely rather effectively, we’re seeing that others need the in person experience and the question is how to do that most effectively.

Stefanie: For those who can work remotely, are you seeing this lead to exodus from bigger, more expensive cities? If so what does that mean for us here in the market?

Sam: Again, there’s going to be a blend. I think what’s unique about the Southwest market, when we look at it, is that geographically we are more dispersed and not as dense or populated as many other markets, so we’re seeing a lot of smaller city centers that are starting to pop up in the Southwest and there’s an attractiveness of these smaller cities and communities — for example in places like Denver, Salt Lake, and Phoenix. So we’re seeing a lot of cost-conscious companies moving to cities like this that are lower cost and that have growing talent pools. Or, they’re realizing that their talent pools really are more remote now and can work more flexibly. Then, there’s the flip side where we have companies who are heavily invested in a certain market and it might be really difficult for them to move — so these are the instances where you’ll see that renewed focus on emerging technology to drive down operating costs and remain competitive.  

Stefanie: That’s really interesting and in line with a stat I recently read from our remote work survey that says while 30% of executives foresee the need for less office space due to remote work, 50% are anticipating an increase due to longer-lasting requirements for social distancing or growth in their workforce.

Sam: That’s exactly right. I think the biggest takeaway here is still the “it depends” caveat — the trends we saw pre-COVID are still here, they’re simply being accelerated. And how these trends impact us in the Southwest will depend on industry, work type, and location. So while we’re leaning into tech and continuing to evaluate impacts on the environment and surrounding communities, we’re seeing companies get creative about how to best navigate these changes in the ways that fit their own people and ways of working with a greater degree of flexibility and innovation.   

Interested in learning more?  Click here to connect with PwC’s Southwest Real Estate team.