THE FUTURE OF OFFICE LEASING POST COVID-19
As we write this blog post, COVID-19 is still in the early stages of threatening the personal health & economic stability of America. Several states have issued Shelter in Place orders, along with the mandatory closure of all “non-essential” businesses (hyperlink to PDF of Essential Businesses which is attached). Seemingly overnight, companies have been thrust into a new reality of managing a remote & decentralized workforce.
The short term effects of the coronavirus on the office market are easy to forecast. Default rates, vacancy rates & sublease rates will all spike. Lease rates will drop and landlords will begin offering aggressive concessions to strong credit tenants. Eventually work & life will return to a more normal state, but there will likely be lasting changes as a result of the coronavirus.
How will COVID-19 change the future of office leasing post COVID-19?
Here’s our humble predictions on the lasting impacts of coronavirus on the office leasing market:
Flexibility will be king
After watching the entire economy stall in a 1 week period, tenants will seek short term or MTM office leases to provide their business with flexibility in uncertain times. Coworking & flexible space will see an increase in demand from businesses seeking to navigate in a changing economy. During COVID, many companies will begin to think about how to incorporate a hybrid model (both remote and in-person work environments) to follow social distancing. Allowing a coworking space helps create a 24/7 open policy to help employees still be flexible in their working schedule, which may be in high demand after the pandemic.
Companies will become more decentralized
Businesses are forced to utilize remote service technologies due to the shelter in place mandate. They also cut down rent costs on office space with limited to no in-person employees present. The reduced price in renting office space will save money for many businesses, while prompt companies to be more strategic about their office structure and purpose for employees that need to be present in the office. A possible short-term solution for companies seeking to adjust their office space would be to explore open office spaces that can accommodate a limited staff during COVID.
Seeking an alternative work environment for a limited staff could also help businesses save more money by reducing the temperature, electrical, waste, and other facility costs. It is important to note that employees who can work from home will become accustomed to non-commutes & all employees, despite their office conditions, would work with smaller teams. Smaller regional or satellite offices will likely compromise for companies seeking to provide a professional business environment while reducing commutes for employees.
Curious how to adjust your office space to fit your budget? Be sure to contact TailoredSpace to learn more about different financial options!
Working from home is challenging
Even though there are positives by working at home, such as saving transportation costs, reducing traffic that occupies main highways, and spending less money on new business outfits, there are also new challenges in creating a productive work environment. As companies learn to embrace a decentralized workforce, the Shelter in Home mandate will have unintended consequences, including employees realizing that working from home is distracting (roommates, spouses, kids, pets, etc.), isolating, and could increase burnout. For instance, it is easier to be organized when there is a physically separate environment devoted to working.
This distinction helps to increase focus by limiting outside distractions and avoids the pitfall of overworking at a computer screen for professions that traditionally depend on face-to-face interactions (i.e. real-estate agents, social workers, educators, etc.) There will be a deeper appreciation for a professional & communal office environment since it allows many to create a physical boundary and keep consistent working hours.
Tenants & Landlords will seek financial protection from future pandemics
Tenants will push to incorporate pandemic riders into leases. Landlords will mandate that Tenants carry separate insurance coverage which will cover health events.
IT Equipment focused on Health and Hygiene
Another possibility that could occur in alternative workspace environments is investing in a ‘no-contact’ office policy. For example, opening doors, turning on the lights, adjusting audio and visual equipment while hosting a conference, or washing hands could be activated through voice commands. Large companies would need to reconsider budget costs in more advanced technology to best support employees in meeting preventative pandemic health procedures.
Companies will continue to invest in physical office space
According to a CBRE Research Client Survey in June 2020, “41% [of respondents] said the physical office’s importance would decrease only slightly, and 38% said it would remain as important, if not more”. Additionally, most responses in this study indicate that “workplace transformation is still trending away from dedicated private space and shared collaborative space.” The need to continue to have a physical space promotes a healthy, collaborative environment to support all staff members in professional development and long-term retention with proper training.
Looking for an office space to impress? Check out TailoredSpace today