Despite an initial drop, what is the long term trend for office space?
Real estate research company Green Street Advisors’ recent report forecasted that office space demand will decrease by 10 to 15 percent, GlobeSt.com reports. The decline, which is expected to be more significant in gateway cities like New York, San Francisco and Washington, DC, is in part due to so many companies working from home during the COVID-19 pandemic. Companies are expected to make the telework option a permanent employee benefit even after the outbreak has ceased.
“The notion that a well-located office building full of highly paid workers in or near a dense, expensive city is the best way to operate a successful firm has been challenged by the acceptance of remote work,” the Green Street Advisors’ report said. “Coupled with an increase in individuals who no longer regularly go into the office, many more may consider moving further away from coastal city centers.”
The case for teleworking
Businesses are considering letting their employees work from home permanently because it has been generally successful, GlobeSt.com reports. Remote employees have been just as productive, if not more, as they were when they worked in the office. The report noted that employees have enjoyed not having a commute as well as more flexibility in their schedule. Speaking of flexibility, some employees also noted they plan to still go to the office every day, while others might go sometimes.
Green Street Lead Office Analyst Danny Ismail wrote that he does not expect a 100 percent telework environment. Ismail noted that a lot of companies’ success relies on organizational culture, corporate communication and employee retention—factors that are stronger when employees are in a physical office. There is no doubt that new employees who never meet their peers and supervisors are at a huge disadvantage. Working from home is not advantageous to onboarding, integrating and training new team members.
There’s still a strong need for the traditional office
Another CRE trend could offset any anticipated decrease for office space, according to the Greet Street Advisors report—densification. Companies have been trying to fit more employees into the same office space during the last decade. With new social distancing requirements however, companies that do want to operate out of an office will need more space to hold their employees.
“A shift toward de-densification could prove a boon to office demand and potentially offset the impact (of working from home),” Ismail wrote in the report. “Investors should remain open-minded about a de-densification trend as this reversal could have material positives for the office sector.”
Meanwhile, as office space demand moves away from the large gateway markets, smaller cities could see an increase in need as they offer a lower cost of living. Cities like Raleigh, Denver, Charlotte, Austin and Phoenix could benefit from the decrease in office space demand. Larger gateway cities like San Jose, New York, Washington, DC, Houston and Boston and are less likely to benefit from the trend, according to GlobeSt.com.
“Employers and employees see more of their income lost due to taxes in gateway markets compared to Sun Belt markets, which has partially driven the recent large net migration towards the Southeastern United States,” Ismail wrote. “Less expensive locales with nice weather will attract talent from high cost and high tax markets.”
Could teleworking get old?
It’s not surprising that companies are exploring letting employees work from home following the COVID-19 pandemic—especially when there’s no noticeable drop in productivity. Decreased real estate costs are another case for implementing a 100 percent telecommute policy.
But how will employees feel working from home a year from now?
This question was raised in a recent Wall Street Journal article that explored the perks of telecommuting. The article noted that there could be some downside to companies having a fully complete remote workforce. Nicholas Bloom, an economist at Stanford University’s Graduate School of Business ,referred to a study he did with workers in China in 2009 and 2010 that found that intense loneliness set in by the ninth month of working remotely.
Could the same happen with remote employees in the U.S.?
“This is like one year into a relationship,” Bloom told The Wall Street Journal. “It’s the early honeymoon where none of the fights have started. Bloom stated remote work in 2019 is a perk, a necessity this year, but by 2022 it will be, “(an) attribute which some people are going to like and others are going to loathe.”
If that’s the case, there’s a good chance the demand for office space could climb back to up to where it’s always been—possibly higher.
Joe Dyton can be reached at firstname.lastname@example.org.