Concerned office market stakeholders can breathe a sigh of relief: one of the largest workforce studies of its kind carried out in April and May this year has found close across to 100 per cent of occupiers count on returning to the office – most by the end of this year.
However, with 65 per cent of occupiers expecting to work from home once a week or more in future compared to 28 per cent who were doing so pre-COVID, the hot topic is now what returning to work will look like. The picture will be dictated by changes landlords must make to office environments according to the wish-lists of those working within them, and the flow-on effects impacting everything from property funds to workplace design, right down to managing elevator use – the number one concern of landlords globally with 89 per cent rating it their biggest challenge.
The findings have been drawn from Equiem’s 2020 Global Office Tenant Report which this year focussed solely on the impact of COVID-19 across the sector. The global leader in tenant experience platforms for commercial real estate with offices in Australia, New York and London, Equiem canvassed more than 175,000 occupiers from over 9000 companies in the US, UK, Ireland and Australia. Responses were sought across three areas: working remotely, expectations around returning to the office and health and safety concerns. Owners and managing agents representing more than 20 landlords were also surveyed.
Key findings were:
- Most occupiers (82 per cent) said productivity either remained the same or improved while working from home – but on the flip side 56 per cent wanted a better home office and 45 per cent missed conversations and collaborating with colleagues.
- Landlords and management take heed: 60 per cent of occupiers will not return to the office ‘until it feels safe’. What does this mean for managers and landlords? In short, not skimping on COVID-19 safety information and updates. In fact the more information the better: over 80 per cent of workers said they will expect to be advised on any active and new COVID-19 cases in their building, as well as cleaning and safety precautions being taken by their company or landlord. Just under 85 per cent of workers will want to know the expected number of people in their office on a given day.
- Tenant experience platforms that can inform workers of such measures have grown in importance and desirability (See getequiem.com).
- Landlords agree WFH will probably increase immediately after restrictions and lockdowns lift.
Importantly, the three critical requirements of occupiers returning to their offices were 1) an increase in cleaning frequency (60 per cent); 2) changes to the building to reduce incidental contact such as staggering entry and exit paths (48 per cent); 3) temperature checking (30 per cent).
Regarding managing the sudden transition to WFH, there also appears to be a way to go: over half of workers want a better work set-up at home, 30 per cent say they need better wi-fi and 20 per cent desire better access to WFH resources.
From an investors’ perspective the question is how the pandemic will impact long-term demand for office space. While acknowledging initial negative effects on rent levels and asset values, analysts say the long-term the outlook is positive, with both workers and managers keen to both maintain office environments as an integral part of business while continuing to control office densities via WFH.
Steven Bennett is CEO of Direct Property for leading fund manager Charter Hall, which owns and manages assets across the office, industrial and retail sectors. He points out that there are several factors that will limit the negative impact on office floorspace demand, primary among them being the fact that office environments are best for collaboration, innovation and ideating.
“The energy and buzz that comes from being in the same physical space is hard to replicate virtually,” Mr Bennett says.
“Other benefits of working in an office include team-building, bonding, relationships, talent mentoring, corporate culture building, efficiency, management oversight and creative collaboration—all things that contribute to the entities' corporate culture.”
The concept of ‘knowledge spill over’ is also well recognised, he adds, citing as an example Silicon Valley’s business clusters which have served to generate shared knowledge and ultimately drive the region’s growth.
Furthermore, the evolving field of people analytics software has found benefits in proximity: using organisational analytics software, global company Humanyze found people on the same team six times as likely to interact if working on the same floor, and people on different teams nine times more likely to interact when on the same floor.
Demanding the best
Ultimately, investors can expect WFH to be adopted more as an extension of the office rather than a direct alternative, Mr Bennett says. Secondly, they will most likely see the office market polarised by quality, driven by increased demand for excellent office environments where health and well-being are prioritised via pristine air and water quality, spacious layouts and so on, as opposed to older lower-grade properties with less appealing features. Better quality buildings will, in turn, attract higher quality tenants which are likely to sign the longest leases and offer the best security.
“We believe (at Charter Hall) that WFH will complement the traditional office set-up, with issues such as productivity, risk management and the creation and progression of company culture all being key reasons why the office environment will continue to be an integral piece of business infrastructure over the long term,” Mr Bennett says, adding over 70 per cent of Charter Hall’s Direct Office Fund (DOF) and Direct PFA Fund lease expiries are longer than seven years.
Likewise, Mark Mazzarella, assistant fund manager and Australian and global analyst with APN Property Group’s Real Estate Securities Investment Team, says office portfolios with relatively short lease expiry profiles are among those that will suffer, while landlords offering competitive rents and fit-for-purpose premises more likely the winning choice for cost-conscious corporates.
Short term there will be declines in tenant demand and falling rents and values. Long term Mr Mazzarella says the “case for office buildings remains intact albeit with some adaptation”.
“We’re confident it will continue to be a key pillar of corporate life, a place in which culture and collaboration are fostered,” he says.
And while Equiem’s survey findings draw much the same conclusion, the report also states that at the same time, building owners will “need to rebuild trust with occupiers, reposition the office as a safe and productive environment, while being able to communicate with tenants who are in the office and at home”.