Posted on February 22, 2021
Businesses Are Planning For A Return To Office Life. When, How, And What Does It All Mean For CRE Stakeholders?
For nearly a year, social distancing protocols have left office spaces underutilized or empty. Building owners and their tenants have stayed afloat with help from the COVID relief packages that funded the PPP loan program and enacted rental protections and foreclosure moratoriums. Congress bolstered these economic safeguards in the waning days of 2020, giving organizations additional relief.
Yet the new year and new vaccines have the nation looking forward with renewed hope to a return to normalcy. That means forward-thinking business leaders are taking advantage of this grace period to define what normal will be for their employees.
Both the questions organizations are asking and the answers they’re formulating promise to have significant effects on commercial real estate (CRE) markets. After all, the widespread adoption of work-from-home policies may have changed corporate culture in ways that may have rendered pre-pandemic spaces outdated and inefficient.
What are those questions, which of them are being asked most urgently, and what do they portend for office space property values and transaction volumes in 2021? Read on to learn more.
1) Which workers will return first?
One could argue that 2020 was the year of the “essential worker.” Many of these individuals never enjoyed the luxury of working from home. Some of them did, at least temporarily, but have been among the first to return to the workplace. In 2021, every business will have to decide for itself what makes an employee essential — not to mention which aspects of the office those employees consider essential to their work.
In a recent roundtable convened by Commercial Property Executive (CPE), Daniel Yudchitz, Senior Design Architect at Leo A Daly, observes that working from home “has eliminated the cultural aspect of work and left only tasks, meetings, and communications — all workplace functions — that can happen virtually.” He goes on to say that the cost of making this necessary transition has been the disappearance of “the intangible parts of workplace life that contribute so much to the way companies think and innovation happens.”
Among the most critical of those intangibles is collaboration. According to another CPE roundtable participant — Cove CEO Adam Segal — employees are still human beings who “yearn for a work atmosphere that is accepting [and provides] additional interaction, camaraderie, and team relationships.”
This desire to collaborate will likely be one of the primary forces driving otherwise non-essential workers back to the office — at least for part of the workweek. A hybrid model that combines remote and in-person work may become the new standard. That said, if workers have uncertainty about the health and safety measures taken by their employers, that return to the office could become more rather than less gradual.
Consequently, any upgrades to a building’s overall wellness, such as touchless entry and UV air treatment systems, will likely pay bigger dividends in 2021. Demand for office complexes outfitted with outdoor workspaces, such as courtyards and plazas, may also surge. Either way, the first wave of non-essential workers to reoccupy the office will likely set the precedents that will define how that space is allocated and utilized for years to come.
2) Who might never come back?
The pandemic has leaders in every industry re-examining their operations. Suppose that it is true, as researchers at the University of Chicago’s Becker Friedman Institute for Economics claim, that between 80 and 75 percent of all white-collar professionals can work from home full-time without triggering a severe drop-off in productivity. What does that mean for office spaces? Are landlords sitting in the path of a tidal wave of vacancies? And will that wave ever recede — will those vacancies ever be filled?
Advances in robotic technology complicate the outlook. Marina Koytcheva, Vice President of Forecasting at CCS Insight, believes roles for robots will expand into housekeeping, food service, health monitoring, and cleaning. This trend is much more likely to impact retail, restaurants, and hospitality before it does the traditional office. However, Gartner predicts that this same trend will bring about the creation of “robot resource organizations” — HR management specifically designed for an AI-powered workforce. In other words, automation could lead to explosive growth in new jobs that require human workers to be onsite, interacting and interfacing with a variety of robots.
To put it another way: every industry will eventually become a tech industry. Just as the Internet of Things (IoT) has helped transform industrial into the hottest CRE property on the market, the automation of routine, repetitive clerical tasks will lead to new infrastructure investments in the office sector. This modernization will, in turn, require both new construction and adaptive reuse. The emptiest office spaces will therefore be those least accommodating of digital transformation.
3) How will the office look — and feel — different?
Behavioral principles will inform the offices that employees return to in 2021. Out: open floor plans that herd employees into a single, vast, undifferentiated space. In: working environments that, while still porous, are defined by the functions they support. Out: one employee assigned to one desk. In: dynamic workplaces in which employees can more freely circulate between the spaces best designed to meet the needs of the task at hand, whether that be a team meeting, a private phone call, or what Georgetown University professor Cal Newport has dubbed ”deep work.”
For employees, that means offices that look and feel communal. “You’re down to your social bubble again. Your team, your teammates — you know their story, you know them,” says Liz Burow, a consultant and former vice president of workplace strategy at WeWork. “It’s an opportunity to actually fix what wasn’t working in the office before.”
This trend places a new emphasis on office furnishings and the sense of coziness they provide. How so? Café style seating may meet collaboration and socialization needs, while corner booths with high-backed seats can offer privacy and encourage concentration. Or consider Studio O + A’s “Home Room” concept. As the name suggests, the model here is the elementary school classroom. This “Home Room” therefore includes “lockers or cupboards for employees to store their things … since employees aren’t likely to have assigned desks” as well as multiple spaces in which employees can gather for team-based work.
Both businesses eager to entice their employees back to the office and landlords searching for ways to make their properties attractive to corporate tenants might look to co-working spaces — with their mix of cubicles, pods, breakout rooms, etc. — for inspiration.
4) Which office will your employees report to?
Not only might the dynamic office of the future look and feel like a co-working space — it might operate like one as well.
Working from home eliminates the commute into the city, a big plus for many. But home has its downsides, distractions and isolation from one’s coworkers chief among them. The middle path? The hub-and-spoke model. Here, a downtown headquarters closely connected to a central business district serves as the hub. The spokes are satellite office spaces located near those bedroom communities where employees live.
“We were already beginning to see an uptick in suburban leasing, mostly for cost reasons, but now we’re also seeing it for access reasons,” says Byron Carlock, real estate leader at PricewaterhouseCoopers. CRE stakeholders should watch for rising property values outside of the urban core in 2021. On the flip side, they shouldn’t be surprised should shorter-term rentals rather than long-term leases drive that appreciation. How any resulting turnover in inventory affects property values bears monitoring as well.
5) When will offices be full again?
In comments delivered on January 25, 2021, President Biden said he expects the nation to reach herd immunity by the end of the summer provided vaccines are made available to everyone — his administration’s goal — by spring. Even then, don’t expect office buildings to refill to pre-pandemic occupancy levels. Many companies, following the lead of Facebook, Twitter, and Square, have indefinitely extended their remote work policies. Consequently, most experts agree that offices won’t be at capacity again until the fall at the earliest.
As this holding pattern obtains, expect to see subleasing rise in popularity. As JLL recently reported, “[o]ver the course of the pandemic, the sublease market has expanded by nearly 47.6 million square feet, or 50.7%.” This trend also augurs well for Class A buildings — and not just because of their aesthetics and amenities. The flight to quality is also a pursuit of exceptional property management: a level of service that instills the confidence employees need to feel before they might be willing to sit in close quarters with their colleagues for eight hours a day, five days a week, again.