Back to Base - how the trend toward remote working is changing the housing sector

As remote working - preferably from home - becomes more commonplace, the housing market is also challenged. What will change in housing as our working world becomes more hybrid?

October 12, 2020

Our working lives will change even faster and more than they already have in light of the pandemic experience. Whether the home office – in those industries where this is possible – becomes the preferred place to work or office life once again becomes more of a focus – the work culture will and must change fundamentally. And with it, the offices. Where previously a lot of emphasis was placed on concentrated work and table-to-table in an open-plan space, it will soon be more a matter of meeting, team and exchange and the corresponding space for this. This will influence the premises for the planning of office buildings just as much as the underlying leasing and investment market. But change will not stop in this sector. Because as remote working – preferably from home – becomes more and more commonplace and accepted, the housing market is also challenged.

What will change in housing as our working world becomes more hybrid? Can or should a new course be set from a political as well as urban planning perspective? And how do we solve the dilemma of affordability and adequate profit for developers and investors, without whom the creation of much-needed housing would be inconceivable?

A floor plan for living and for working

"If the home must also become a workplace, the floor plans must be changeable and a room must function just as well as an office as it does as a dining room," says Lars von Lackum, CEO of LEG Immobilien AG. So the shift toward a hybrid working world is definitely also a challenge for developers of residential projects and their architects. Flexible solutions are needed, as well as more space, or rather room for work in the new home. Because this will be in demand in the future from tenants, investors as well as those willing to buy for their own use. Does that mean that every apartment now has to be 20 square meters larger? No. Because more surface means in the reverse also more costs and there Konstantin Kortmann, Head OF Residential Investment with JLL, holds 20 additional square meters for the normal earner clearly too high and reduces to 10 to 13 square meters. "The trend towards more rooms in a smaller area - i.e. away from open floor plans and penthouses - has already been evident in new construction in Germany's major cities in recent years and is now tending to become even stronger," says Kortmann. Ultimately, he says, it amounts to a return to the classic floor plans of the 1950s, in which more but smaller rooms offer greater flexibility and can be used sometimes as a workplace, sometimes as a guest room or even an additional children's room.

But flexible alone – is that enough? After all, if you spend most of your days at home, you need to feel even more comfortable than you already do at home. And that includes, above all, access to open spaces such as balconies, gardens or roof terraces. Kortmann: "But this also has an influence of 25 to 50 percent on additional consumption, although in new construction there are currently only micro-apartments without balconies, in normal new construction this has become the standard anyway." That's why residential areas should also meet more leisure and comfort needs than before – a children's playground on the doorstep is just as important as a high-performance broadband connection. A higher degree of sustainability, above all through intelligent energy-saving technologies, is also part of more at home.

From more space and comfort to the balancing act between affordability and adequate profit for developers

At least as important – the new demands for flexible space, green access and more sustainability must ultimately be affordable. But how to achieve socially acceptable rents while providing more comfort and good quality? The most important thing is to create more living space. Local politics is called upon here with the activation of new building areas, accelerated approval procedures and the introduction and enforcement of subsidy quotas, middle-class programs and social infrastructure such as daycare centers and schools. However, the stronger requirements and obligation of developers and investors to create an even greater proportion of social housing also mean that the remaining proportion of condominiums in the projects must be sold at the highest possible price in order to realize a profit commensurate with the risk. This not only leads to a further increase in price and scarcity, but also means that developers are more likely to turn to the more rewarding construction of offices. Clearly a dilemma. After all, the issue of "more affordable housing," which is rightly the subject of intense debate in society as a whole, hardly seems solvable in this way.

Precisely for this reason, it is enormously important to pursue new paths that noticeably reduce construction costs. "What matters now and in the future is to think everything in modular, digital and smart terms. An intelligent type of project development must be established that enables low construction costs and thus also affordable rents," says Andreas Gräf, CEO of Instone Real Estate Group, adding, "In addition, when it comes to subsidized housing, people almost exclusively talk about new buildings. At the same time, the existing stock also offers a lot of potential for extensions beyond the original term, but this is hardly used." The existing problems in brick-and-mortar retail also offer an opportunity, he said, to rethink downtowns with housing in mind, to repurpose vacant land, to focus on more mixed-use development, and thus also to further enhance the quality of life. And, Kortmann says, for many companies – especially larger ones – housing for their employees has once again become more of a focus. "We are currently getting inquiries from Munich, but also Berlin and Frankfurt."

The ever-widening suburban sprawl as a way out of the dilemma?

But is it even necessary to build in the cities anymore? After all, who still needs apartments in the city center, or at least close to it, if they no longer have to commute so often between home and work? So doesn't Corona solve the urban scarcity problem virtually by itself?

"The first thing to say here very clearly is that the suburbanization that everyone is now observing was already underway in recent years – without Covid's intervention," says Kortmann. "Munich, Berlin and Frankfurt have already been losing their populations to the surrounding areas in net terms for several years." However, interest from both users and investors stops where the public transportation network ends. So here, too, the cities and surrounding municipalities are called upon to think bigger and expand the network accordingly if the new remote working trend accelerated by Corona is to be used as an opportunity to further and sustainably relieve the inner cities and establish new interesting core markets for users and landlords alike. 

Nevertheless, according to Lackum, the pull of the cities will continue to exist, as the cultural diversity and exchange that only takes place here in this density are important for many people and will remain so. In order to preserve precisely this for the future, appropriate market regulation is enormously important.

Dr. Konstantin Kortmann,Country Leader Germany & Head of Markets Advisory
Dr. Konstantin Kortmann
Country Leader Germany & Head of Markets Advisory