COVID-19 changed the American worker. According to Forbes, at the height of the pandemic, more than half of the U.S. workforce was working from home. Now, as we enter the post-pandemic world, employers and employees are rethinking what they want and need out of office space. Since the beginning of the pandemic, most traditional office buildings have sat vacant, hitting a high vacancy rate of 17.2 percent in Q2 2021. Now, with the COVID-19 vaccine widely available and distributed, many commercial real estate experts predict a rebound for the office sector. In this article, Matthews™ will discuss how the global pandemic created a new way to work and analyze the future of office space.
Current Conditions
Although 77 percent of in-office jobs have recovered since the start of COVID-19, the office sector is still plagued by adverse market trends. The national vacancy rate sits at 12.3 percent, while the 12-month rent growth is at -0.7 percent as of September 2021. Increased supply and low sales activity are major contributors to the high vacancy rates. Although sales activity is struggling, the office sector has forward-looking metrics that predict a better trajectory in the future. Occupancy losses dissipated to only a third of what the last three quarters reported under strict COVID-19 guidelines, and deliveries rose to their highest level in over a year in the summer of 2021. The Sunbelt continues to be a driving force for office supply growth, including the Nashville, Atlanta, Raleigh, and Charlotte metros. Overall, investors remain cautious of
the office sector due to the rapidly changing market conditions, but many believe the asset is set for a rebound as offices reopen.
The Post-Pandemic Worker
Flexibility became top of mind for employees during COVID-19. The global pandemic introduced new routines, schedules, and home offices. While some preferred working from the comfort of their couch, others took to the road and utilized Wi-Fi during cross-country road trips. No matter the type of remote worker they were, flexibility remained the necessary component. Companies need to keep this in mind as they move forward with setting expectations and asking their employees to come back to the office. Most often, a one size fits all approach will not work for the majority of companies. Commercial office space developers, owners, and tenants need to address how square footage can be used efficiently for those whose roles are dependent on relationship development, networking, and effective work areas, but also for those who come in two to three times a week and require less space and resources.
Designated Office vs. Shared Workspace
In recent years, shared workspace concepts emerged in major U.S. metros. A shared workplace, also known as co-working spaces, are workstations or offices individually rented within a large commercial space by remote workers, freelancers, consultants, or companies without a designated office. With this concept, businesses can rent space for a specific amount of time, compared to leasing much larger offices that require a long-term lease and may have underutilized areas.
The Effects on Retail
The effect of the work from home rend reaches far beyond commercial office space. Many small businesses rely on day-to-day commuters that stop by before, during, or after work. According to the National Restaurant Association, on-premises dining for lunch pre-pandemic was 39 percent, compared to 28 percent as of August 2021. As companies delay reopening dates and offer more flexible schedules to employees, city centers that heavily rely on business patrons, such as New York City and Downtown Los Angeles, will struggle to regain momentum seen during prime lunchtimes before the pandemic. This will force retail owners to adapt and evolve to match new consumer habits, like establishing an online and delivery service to cater to the work from home era.
Conclusion
The office sector was one of the hardest-hit spaces in commercial real estate at the start of the pandemic due to nationwide lockdowns, restrictions, and guidelines. As many workers formed a familiarity with working remotely, others missed the collaboration and networking in-person offices provided. Moving into the future, global and local businesses will need to evaluate what their employees are looking for in a post-pandemic world, including flexibility in the workspace. With the advancement of technology and the introduction of co-working space, companies are not looking at a shortage of options when curating an office space that produces productivity, efficiency, and great company culture. The American office space may not be as crowded as before, but it is believed to be an asset for employers and employees to connect with peers and stabilize their routines.
