Office Space in a Post-COVID World

Posted by Jack Schmittlein on Sep 26, 2020 10:54:42 AM
Jack Schmittlein
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OfficeAmid the COVID-19 pandemic, almost every aspect of our lives--both work and social--changed in the blink of an eye. And companies now face a question that would have been inconceivable a year ago: do you really need an office?

Office space will forever be different after this pandemic and must adapt to meet the needs of the new reality of in-person collaboration. From changing work habits to rethinking the needs that office spaces will serve, offices will fill the gap that technology cannot in what will become a blended work-from-home dynamic. 

Commercial Office Space: Pre-Vaccine

In March 2020, when offices across the world shut down, the concept of having every employee work-from-home became a reality for many organizations. Flash forward 6 months, much of the workforce has had to adapt to an almost 100% remote environment. With so much uncertainty around COVID-19, the reality is that until an effective vaccine is approved and distributed en masse, we will likely see a slow return to the office.

The Short-Term Revolves Around COVID-19

According to an S&P Global research survey, nearly 80% of organizations are working from home as of June 2020. The health of the occupants is the most prominent obstacle facing offices for the next 6-12 months. As long as COVID is a threat, many employers don't want to risk the health of its workers. Furthermore, many employees feel more comfortable working remotely. The uncertainty of the virus and trying to reconfigure offices in this pre-vaccine phase will likely keep office demand muted for the near future.

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Short-term Office Lease-Ups

With so much uncertainty brought on by COVID, corporations will be hesitant to make long-term leasing decisions for at least the next 6-12 months. According to the same S&P Global study, “79% of organizations agree that social distancing will be the biggest challenge in resuming normal operations.”

Think back to your daily commute and office routine at the beginning of year. Something as simple as hopping in an elevator bank with five or six colleagues at the start of the day is now not possible. In a world where only one or two people can safely ride in an elevator, will the cost to reconfigure touchless elevators and time required to move an entire workforce to the correct floor truly be worth it? 

The Bottom Line

If a remote workforce model can save companies time and money in the short-term, it is unlikely that businesses will invest in new office configurations. Lease-up activity for the next year will likely continue to be slow due to the recessionary economic climate and the expenses associated with reconfiguring office spaces.

A Look Ahead: Key Factors to Address Post-Vaccine

Many have spent over half of the year working remotely. While certain aspects of working from home are great, only 12% of U.S. workers want to work from home full-time. Work-from-home is working, but how long is this model sustainable for employees both mentally and physically? Let’s dive into three key areas that will affect office space in a post-COVID world:

  1. Office design
  2. Office location
  3. The wants and needs of office occupants

Redesigning the Office: A New Purpose

Touchless Technology

Toe to GoNew technology is being developed for commercial office buildings to make employees feel more comfortable returning to their offices. The Toe-To-Go foot-activated elevator system and non-thermal plasma ventilator system are examples of recent changes already. Touch-free appliances and technology improvements will be key for people to feel safe coming back to the office. In general, we are becoming more accustomed to a higher standard of cleanliness in buildings which will drive these changes for years to come.

Footprint Size

Will a shift in collaboration zones require more or less office space? Nearly a quarter of NYC employers plan to reduce their office footprint by 20% or more according to a NY Partnership study. These past several months have proven that individual work and projects can be completed remotely. As a result, cost management and office space utilization are more prevalent now than ever. With the help of new tools and software services such as Rapal, companies can cut unnecessary real estate costs and focus on how to maximize their current office space. Tenants and landlords will have to work together to transform and reconfigure offices that best suit the tenant’s needs.

A Focus on Collaboration

Coffee chats and face-to-face meetings are difficult to replicate virtually. Now that teams have had time to build trust among one another in a virtual setting, offices will have to serve a new purpose to draw employees back. Offices will need to accommodate for more collaboration zones and fewer individual workstations. Thom Mayne, a well-known Los Angeles Architect, plans on “moving two-thirds of the desks out of the office, [as] it will become more of a meeting place.” The office needs to provide something to employees that they cannot get from their homes. According to a TPG employee survey, 86% of respondents said that collaboration with their teams would be their number one reason for wanting to return to the office. In a world where employers allow for greater workplace flexibility, the office will serve a more niche purpose specific to collaboration and connectivity.

Relocation: Hit the Brakes on a Mass Exodus

The hybrid approach of working remotely and in-office poses the question: will people change where they live? One possibility is that by allowing employees to come into the office on a staggered basis, people may migrate away from major cities and move to suburban markets. However, there will likely not be a major migration to these outer markets because a centrally located office offers amenities and an environment that fosters much-needed collaboration. This will positively affect urban office demand in the long term.

Commuting

Commuting is one of the biggest downsides to going back to the office. In one study, 55% of workers agreed that commuting was the worst aspect of the traditional workday. The blended work-from-home schedule gives employees a reason to stay in cities, thus increasing demand for core urban offices to remain centrally located. And because offices will turn into collaboration zones, employees will be motivated to stay relatively close by.

The Workforce: Culture & Productivity

Reaching Peak Productivity

Understanding how to maintain productivity while having an entirely remote workforce is at the forefront of this office debate. Multiple studies have shown how productivity has increased during the pandemic, but the problem that is arising for many is struggling to find a work-life balance as it becomes more blended. While productivity is increasing, people will continue to lose a sense of routine and balance. One study showed that 50% of people would ideally work from home 3 days per week, leaving 2 days for collaboration in the office. People can be productive from a remote basis, but maintaining an office footprint will spur the creativity and cohesion that often gets lost in remote work settings.Workplace of the future

Maintaining Company Culture

Building and maintaining company culture has been a struggle for many companies since going remote. The main platforms that firms are using for communication, such as Microsoft Teams and Slack, have come up with additional features to spice up team calls and meetings. However, Microsoft conducted a report in which “Nearly 60% of people we surveyed feel less connected to their colleagues since working remotely more often.” Offices serve as a place to collaborate and build a sense of community among coworkers which is hard to achieve in a virtual setting. On certain days, workers may want to be in the office, maintaining relationships and collaborating with colleagues–while other days, they may work remotely.

Concluding Thoughts

The traditional commercial office will undoubtedly be different coming out of the COVID-19 pandemic. Some office asset classes will do much better than others, but it comes down to how landlords and office tenants design spaces that work for them. As our world continues to adapt to a remote working environment, the building of relationships and collaborating will always remain prevalent in the workplace. Offices will play a unique role from what they once did, but in a world that continues to become more virtually centric, the in-person days in the office will become more important than ever.

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Topics: Market Update, Office

Jack Schmittlein
Written by Jack Schmittlein

As a Summer Analyst, Jack worked closely with RRA Capital’s underwriting and originations team. Jack is pursuing a degree in finance and a minor in accounting at Clemson University as he enters his senior year.