Bustling skyscrapers and offices cramped and crowded with workers could be a fragment of the pre-COVID-19 world.
The COVID-19 Pandemic Health Crisis has forced millions of Americans to abandon their offices in favour of working from their homes. However, there are sure signs that this may not be a short-term phenomenon; rather, it is more of a permanent shift in lifestyle, day of life, especially remote work even after the COVID-19 pandemic has settled.
According to a survey released by KPMG, a global network of professional firms providing Audit, Tax, and Advisory services, more than two-thirds (68%) of prominent company CEOs plan to scale down their office spaces[i]. The COVID-19 pandemic has demonstrated that employees don’t need to work in cubicles or offices to be successful. And that, in turn, begs the question regarding the value of offices and expensive office space, especially in high-end and high-priced cities like New York, San Francisco, and Los Angeles[ii]. In fact, according to KPMG’s CEO, Paul Knopp, that home-based work or virtual working environments have proven to be somewhat effective and productive. Moreover, a survey of companies with an approximate total revenue of $1 billion held that shifting to a more adept and ready virtual model is not going away. In fact, it is going to be the norm. Corporations are accelerating their investments to accommodate and pioneer a shift to a virtual working environment. Corporations will be planning to spend more on the digitalization of workplaces and the accommodation of work-from-home employees lest they be left behind in the arms race of virtualization of operations and creating the next generations of operating systems and models. There will be no question that corporations will invest in creating a workforce model, the increased use of automatons, and artificial intelligence to work alongside humans to accommodate the changing tides. This is the modernization and effect of the COVID-19 in the workplace. It forces corporations to shift their focus on the modernization and digitalization of their workplace, preceding expensive office space in favour of a virtual working environment.
Even before the COVID-19 pandemic, a growing shift towards remote work offices across America has organized this movement at a rapid pace. The declaration that expensive office spaces to be dead have evolved from whispers to shouts. People are beginning to realize – especially in light of the pandemic – that the old concept of office space may no longer be useful for many industries as they entail high overhead costs. This, however, does not mean that it is entirely gone; instead, it has merely changed; evolved. The concept of the rebirth of office spaces through its virtualization and digitalization has paved the way for companies to rapidly grow and take opportunities for certain companies to capitalize on this trend. That being said, while some businesses have thrived in the realm of remote work, others have toiled or have had to shut down completely. With COVID-19 cases continuing to rise, remote work will be the focal point of companies if they wish to stay afloat. A downside of these remote working conditions is due to the seemingly unending confinement and isolation caused by the pandemic. Many employees are missing the human element and camaraderie that comes with an in-person workplace. For the forward-thinking investor, both of these competing forces create an attractive opportunity for investing.
However, there is no situation that offices will ultimately die. For example, let us take the experience during mid-2021 where states lifted the stay-at-home order and gradually let business re-open. Companies gingerly allowed white-collar workers to return to office buildings despite weighing how much they needed the space. While about half of U.S. employees worked from home during the COVID-19 pandemic during shutdowns, many companies – including Facebook, Google, and Morgan Stanley – plan to continue allowing at least some staffers to telework at least some of the time even after the vaccine and the health crisis is over. Analysts, moreover, do not predict an abandonment of office spaces. More office spaces will be needed in the short term to accommodate social distancing requirements until the lingering effects of the coronavirus will be totally controlled or even eliminated. There could be a very likely scenario where leasing and construction activities in less expensive suburbs would increase with this premise in mind. Over the long term, companies will most likely still want most workers in the office to promote collaboration and morale.
The home isn’t an office and shouldn’t be treated as such. Late in May of 2020, Google had given their employees an allowance of $1,000 to purchase the necessary equipment and office furniture. The question is whether this allowance is enough to make one home a truly adequate office space. There is, therefore, an uneven playing field, as one’s own home is not like another’s. While some may already have the necessary equipment, furniture, appliances equipped with expensive technology from printers to coffee machines and an internet connection, others will be struggling to find a place to stay or a desk to place their equipment. In addition, the sudden shift to virtual working has had some hierarchal hurdles. Rank and file employees are more likely to be in a house with minimal workspace, and therefore their productivity will be hindered. In stark contrast, managerial or supervisory employees will undoubtedly have the funds and space to make virtual working as comfortable and as easy as possible. Hence, it can be reasonably said that office spaces will never be phased out and will never cease to exist as technical, physical, emotional, and people problems will exist.
In summary, while office spaces might be, at first glance, at the brink of extinction due to the COVID-19 pandemic, further analysis into the circumstances would tell otherwise. There are many advantages that office space tends to offer, from a moral standpoint to a worker’s productivity. Consequently, while virtual office space has emerged in light of the COVID-19 pandemic, this does not spell disaster nor the end of office spaces. In fact, it will be a catalyst for office spaces to be as affordable and essential as ever.
Even after outlining all the information above, if you have questions around leasing or buying commercial real estate (CRE), please reach out to our Team at Commercial Properties, Inc. We’re here to help you achieve your CRE goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.
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Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
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[i] https://home.kpmg/xx/en/home/media/press-releases/2021/03/nearly-half-of-global-ceos-dont-expect-a-return-to-normal-until-2022-ceo-outlook-pulse.html
[ii] https://home.kpmg/th/en/home/media/press-releases/2021/03/press-release-ceo-outlook-pulse-2021-en.html