Office life reinvented: What now for the future of real estate?
The COVID-19 pandemic has induced many major changes in people’s behaviour as social distancing and city lockdowns were enforced across the globe. For one, there has been a seismic shift in terms of the number of people working from home - and it turned out to be easier than many might have expected.
Flexible working is not new. An IWG study suggests around 70% of office workers globally have been operating from home once a week since at least mid-2018.1 However, as a result of the pandemic, the percentage of people now doing their job from home has risen tremendously.
One analysis showed that globally, 2.9% of employees were working exclusively or mainly from their home pre-COVID-19, but the number who can do so if necessary is estimated to be 18% globally after the pandemic.2 Notably Facebook and Google have said they will let employees continue working from home for the rest of the year.3
A separate survey found - even as lockdowns are slowly eased – that as many as 75% of employees prefer to work from home at least occasionally, while more than half would like this to be their primary way of working.4 This dramatically-accelerated transition to remote working has introduced a growing pessimism regarding the future of offices and in turn created big concerns for commercial landlords, as employers might start to reconsider their leases.
The rise of co-working
In the new era of germ-awareness, the emergence of co-working space in recent years might turn out to be short-lived. Worth approximately US$26bn prior to the pandemic5 , the co-working sector has been a major disrupter of commercial real estate investment trusts (REITs) in the past few years. But the fact that it was created for sharing and collaboration, its original enabler, also turned out to be its biggest disadvantage in what is now a prevalently germ-sensitive world. Following the delayed initial public offering of WeWork, a US-based co-working giant, the survival of many smaller co-working business has become questionable as their buildings stay empty. While traditional tenants are tied to a long lease, most co-working tenants are on rolling arrangements and free to leave without penalty.
The precarious prospect of the co-working industry is further deepening the overall worries over commercial real estate. But are we writing off the office sector too quickly?
Reversal of densification in office space
There are various factors in play which will support the sector, some of them even pandemic-induced.
Driven by technology and soaring real estate costs, densification has been a trend dominating the office space in the past decade. Private offices and cubicles are replaced with big open floors as companies turn in favour of open, collaborative work spaces.
But this trend is likely to be reversed as people are more cautious and demanding of social distance nowadays. That means employers will likely to need more space to contain the same amount of people to fulfil the desired distance between workstations in the future.
Hot-desking is going cold
For similar reasons, the hot-desking trend, which encouraged people to move about instead of having a fixed seat, is potentially another casualty of the pandemic. The escalated hygiene concern would make employees always want their own desk, meaning companies must let go of using hot-desking as a cost-saving measure and ensure they have enough office space for every employee, even when they are not coming in office as often as before.
Besides the factors that may require employers to hold or even increase their office space, there are more compelling reasons for employers to keep their offices alive. Ultimately, offices are more than just a place to do business, it’s also where the culture develops.
Offices also create meeting points for social and cultural exchange. Without offices, younger workers will miss out on learning from senior colleagues, and those casual conversations that lead to knowledge sharing, idea bouncing and problem-solving will not happen. At the end of the day, humans are social animals, and the kind of social satisfaction acquired through a physical space is something many employers and employees cannot afford to lose.
However, when we look at the future of offices, we must acknowledge that the working-from-home trend will likely remain and disrupt office life, as more companies move to adopt a hybrid model. Facing the double pressure of providing high-quality space and supporting employees requiring flexibility, companies will have to redesign their office strategy, be it creating bigger spaces, adopting smart technology to manage the space utilisation, and/or providing new cost-effective locations. In every case, it’s certain that offices will evolve and become more versatile in terms of how they use space, which could potentially create new opportunities for investors.