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Are Corporate HQ’s Dead?

The COVID-19 pandemic has forced many businesses across the U.S. to implement work from home (WFH) policies that have been in place for almost eight months. During that time, a lot of those companies have either made their WFH policy permanent for the foreseeable future, or are at least considering it.

If the remote work trend continues even after the pandemic subsides, what does that mean for corporate headquarters and commercial real estate as a whole?

According to Chris Herd, founder and CEO of the remote work setup startup company Firstbase, “HQ’s are finished,” GeekWire reports. Herd noted that he spoke with approximately 1,000 companies during the last six months and estimated that many would decrease their office space by 40% to 60%. Herd also wrote that about 90% of workforces believe they “never want to be in an office again full-time.”

Herd might be on to something, as Microsoft announced earlier this month that WFH will continue to be a part of its structure. Cost reduction, quality of life and more access to talent were WFH benefits that companies cited in Herd’s informal survey.

CRE industry remains optimistic

Commercial real estate companies aren’t as convinced that physical office locations are dead, however. Real estate company Broderick Group noted in its Q3 report for the Seattle area that it might take some time got get back to its pre-COVID-19 levels, but it remains confident in is recovery.

The Broderick Group said, “Bet on cities. Bet on Seattle.” in its report, but there are some numbers to make CRE owners take pause. The shift to remote work increased office building vacancy from 6.2% to 6.9% in Seattle, according to a Kidder Matthews report. Meanwhile, there was more space vacated in the area than leased (also known as negative net regional absorption) for the first time since Q4 2107.

Despite these unfavorable statistics, Kidder Matthews sees them as temporary, rather than the start of a long-running trend.

“While sales activity will be slow to recover and the fundamentals of the regional office market are expected to be volatile, the region appears to be positioned to ride out the storm, but time will tell,” the company said in its report.

Meanwhile, JLL Seattle Senior Vice President Blair Stern said he is not seeing a lot of clients commit to remote work long term. Part of the reason is companies are having difficulty with productivity and employees’ well being hasn’t been as good in the WFH setup. Plus, despite Microsoft’s plan to have employees work from home part of the time, the technology company’s research revealed that remote work has caused stress and mental fatigue. Employees still want in-person interaction, which can help with collaboration, form company culture and create camaraderie, according to Stern.

So, while it may take some time for the CRE market to get back to pre-COVID-19 levels at least there are signs that companies are returning to their offices. Broderick Group noted 20 to 25% of employees are currently spending time at their offices, according to GeekWire. That figure was between 5% and 10% during Q2.

Interest in HQ’s remains for big tech companies

There are companies that have decided to give up their physical spaces, but there’s often a buyer not too far away to grab them. For example, outdoor retailer REI decided to sell its new headquarter complex in August and operate out of several regional locations. Facebook is currently letting employees work remotely until next July, but purchased REI’s 400,000 square foot complex for $367.6 million. Meanwhile, Amazon leased two million square feet of office space in downtown Bellevue, WA.

“(COVID-19) has yet to trip up demand from the tech giants,” Broderick Group said in its report. The real estate company also reported that several tenants are considering adding space to be subleased. Doing so, “should lead to a growing available space market for the next couple of quarters.”

Offices will likely look different going forward

Even if companies maintain their office spaces following the pandemic, changes will have to be made. For example, Starbucks is remodeling its headquarters to allow for more flexible workspace. Meanwhile, more companies are likely to follow Microsoft’s lead and implement a hybrid strategy where employees can work from home, but also have access to a shared space at the office for when they need it. The model would be beneficial to CRE owners who’d be looking at vacant spaces otherwise. Social distancing will also dictate that employees are not grouped together too closely which will also mean companies need more space for fewer people.

“Co-working will boom,” Amy Nelson, CEO of the Seattle-based The Riveter told GeekWire. “It provides people with an alternative to the traditional office and an alternative to home.”

Joe Dyton can be reached at joed@fifthgenmedia.com.

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