The COVID-19 pandemic has forced millions of workers home, emptying out offices. It also has taught many companies that their employees can work efficiently from home. As of September 2020, many of the nation’s largest companies were allowing employees to work remotely. Inevitably, this has caused numerous businesses to evaluate their office-space needs and associated costs. Turner & Townsend’s Linda Foggie spoke with Scotsman Guide about the pandemic’s short-term and long-term implications for the U.S. office market.
Has COVID-19 brought a temporary or lasting change to office-space demand?
It will carry on for quite some time. At some point, demand will return, but it will look different than it did before the pandemic. And what I mean by that is, demand for a big office in the center of a major city with a thousand people in one building, maybe the day of that will pass. What we might start to see is a spreading out, what we call sometimes the hub-and-spoke model. Sometimes people refer to it as the suburban office, where there might be locations that are more convenient for people posted to their homes.
Will office-asset values drop substantially?
In the near term, yes, we may see some impact to overall value, but real estate, particularly office, is quite resilient. And so, in the long term, we’ll see values return. As the recession deepens, some companies will not be able to survive. As those companies fall out, you may start to see some consolidation in certain industries, mergers and acquisitions. As that happens, it will slowly cause a return in the values. I do think, though, the values will take a hit for a while in office markets, but investors will know to hold onto an asset class that has always been a winner over the long term.
There won’t necessarily be a need for employees to come all the way into the office just to do some of their activities, but the office will still have a purpose.
Will building uses and designs change?
There won’t necessarily be a need for employees to come all the way into the office just to do some of their activities, but the office will still have a purpose. We’ll need to shift how it’s designed. For example, for our company, a sales-pitch rehearsal is much more effective if we can do them together in person. Is the office quite set up for that? No, not really. It’s mostly set up for heads-down work most of the day, with a little bit of collaboration. And you might see that turn completely on its head, where the office is mostly set up for activities that need to be done when people need to come in and be together.
How can a CEO justify the high cost of an office?
People have demonstrated that they can be quite productive at home, and nobody would argue with that, but there are certain aspects that are missing. The most important one, for sure, is culture. Culture is really integral and important to a company. And so, engagement matters and engagement is hard to get if your people are all in their individual spaces at home. Just doing it by video and phone can be quite difficult.
For example, one of the aspects that’s missing is what we call the “casual collisions” that occur in the office. These are missing because you’re only on scheduled calls. You’re scheduled only to talk about certain business. So, you miss the opportunity to have these casual interactions, which play a big part in culture. The other aspect you have to think about is the learning that occurs between less-experienced employees and highly experienced employees. You might only hear senior leaders or your more experienced people on a scheduled call, and you don’t get to understand or hear what happened in between the calls and the other moments.
A CEO would be thinking about those things when they’re trying to justify if they still need a central office. Do they need it to be as big? Maybe not. Do they need some sort of place? I think CEOs will say “yes” to that investment. ●
