By Andrew McIntyre

Law360 (March 16, 2022, 11:02 AM EDT ) Two years on from the World Health Organization declaring the COVID-19 outbreak a pandemic, real estate investors are closely eyeing various questions, including how an office hybrid work model may work and where the retail sector is heading.

Investors are watching how companies approach the remote work question going forward in order to gauge how much office space will be needed down the line, while retail investors are also monitoring how that sector tries to adapt to continued pressure from e-commerce.

Meanwhile, companies are increasingly paying more attention to sustainability, particularly energy efficiency amid Russia's invasion of Ukraine.

Here, Law360 looks at three questions to watch in the real estate space, two years into the pandemic:

What Will the Hybrid Work Model Look Like?

All eyes in the real estate world are on the question of how much space office tenants are taking as many companies shift to a remote or hybrid model, and experts say it will continue to take time to fully realize the impact of the pandemic on the office sector since such changes often happen when leases come due.

"It seems like the vast majority of companies are embracing a hybrid model. ... The bigger picture for office buildings is when all the leases start becoming due," said Barry Katz, a partner at Saul Ewing Arnstein & Lehr LLP. "It's always a rolling renewal period. What's going to happen when these big blocks come up for renewal?"

One challenge, experts say, is striking a balance between offering employees the flexibility to work from home while continuing to maintain an in-person office culture.

"Where it will land, nobody really knows. I also hope and just know in my bones that 100% remote cannot be where this lands," said Eric Rapkin, chair of the real estate practice at Akerman LLP. "How do you identify the next group of leaders if you never grab lunch, have coffee? That's how you get to know people. That can't happen if it's solely on Zoom."

And experts say companies will also have the onus of enticing employees to come to the office by providing certain amenities workers can't get at their home offices.

"You need to have something in the office to attract people besides a desk and good internet, because you can now get that anywhere," said Andrew Raines, a partner at Raines Feldman LLP. "The pace of office return seems to be settling on a hybrid of three days in, two days out."

How Will ESG Figure Into Investment Decisions?

Real estate companies are increasingly putting more thought into environmental, social and governance questions as they invest in new properties, and Russia's invasion of Ukraine has also shined a light on the environmental question as it relates to energy.

"With the Ukraine war, there's increased focus on energy ... and companies are relying on more energy efficiency," Katz said. "ESG is becoming much more on people's mind. A lot of companies are being socially responsible with their investments."

Raines said supply chain disruptions have also caused developers to think about different building approaches and how to achieve greater efficiency in their buildings.

And while ESG has been a buzzword in real estate for the past several years, experts say more companies are now taking a serious look at the idea and making concrete plans.

"We're watching the rise of ESG as a component of how businesses run themselves ... from a place where it's aspirational and sounds nice and is something we should all be focused on ... to actual metrics to be achieved. Not just aspirational goals," Rapkin said. "It's an interesting concept to keep an eye on."

What's the Path Forward for Retail?

Two years into the pandemic, brick-and-mortar retail still faces uncertainties, and experts are watching for the ways in which traditional retail will become more experiential.

"Retail was already dealing with online purchasing and then COVID really stuck a nail in it," Raines said. "It is beginning to reinvent itself, which is tied to more experiential attractions, which it was doing before COVID and will probably just continue to do so. You'll see more clubs, more music venues, more video, more virtual realty."

Another way that retail may evolve is to bring cannabis tenants into retail spaces in states where recreational pot is legal, Katz said.

"Retail's tough right now," Katz said. "The cannabis industry is a growing industry and is looking for space. ... Sometimes cannabis can go in to retail and take up storefronts. Owners of retail centers are trying to figure out a way to repurpose them."

And the major question that remains is just how much more of an impact e-commerce will have on brick-and-mortar retail. Industrial and warehouse real estate has been one of the hottest asset classes during the pandemic, while investors remain skittish about retail real estate.

"The effect that e-commerce was going to have on retail, that was already happening. That wasn't a new surprise," Rapkin said. "The pandemic totally accelerated the transformation."

--Editing by Alanna Weissman and Michael Watanabe.

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