How will COVID-19 impact the office market?
Updated: May 23
Continuing our assessment of the short- and longer-term impacts of the COVID-19 pandemic on various segments of the real estate market, below are some observations about what the future office market may look like.
Our collective working-from-home experiment has verified that many office functions can be performed efficiently off-site. Post-pandemic, given concerns about employee health and safety and the ability to minimize overhead costs, we expect an expansion of the remote working model and an overall reduction in future office space demand. A late-April survey indicates that 69% of large corporations anticipate shrinking their physical space requirements to accommodate remote working and Nationwide Insurance has already announced that it will close five satellite offices, totaling over 2 million SF of space, and make permanent the remote status of those locations’ 4,000 employees.
The configuration of office space will also be re-envisioned. In addition to learning what functions can effectively be performed off-site, this crisis is revealing what activities benefit most from in-person connections. Overall, look for priority to be given to spaces that promote necessary face-to-face collaboration and the provision of more separated individual work stations. In certain industries that require more personal interactions, office space demand could actually spike -- given the likelihood that social distancing guidelines will remain in place, as other users vacate the market, these industries may take advantage of reduced rents to provide additional physical space to employee work areas.
Expect a re-examination of the densification of workspace trend. WeWork has already announced changes that it will reduce the number of members allowed to use shared facilities, create buffer zones to promote physical distance, institute one-way corridors and expand its cleaning services.
Look for tenants to condition future lease agreements on pandemic-related factors, including building sanitization policies, provision of improved air circulation, availability of touchless entry, screening of employees and building visitors, density limits, etc.
As with the retail sector, office landlords that can offer flexibility regarding short- and mid-term lease payments and rent levels will sustain fewer vacancies, which are unlikely to be filled in the next few years.