While the pandemic continues to delay the return of workers to offices, businesses are growing more bullish that staff will be back in cubicles sooner rather than later.
Demand for office space surged 235 percent in August compared with a year earlier, the eighth monthly increase in the past nine months, according to the VTS Office Demand Index. New office demand now has recovered 84.4 percent of its post-Covid drop.
At the same time, the glut of sublease office space, which started last year, is improving.
According to CBRE, a commercial real-estate services firm, the amount of office space offered for sublease in the top 53 U.S. markets showed its first decline in August since the pandemic began in March 2020.
Still, the coronavirus likely hasn’t had its last say in the matter.
The “full impact of the rise in Covid-19 cases due to the Delta variant could still reveal themselves in the coming months, as some markets — such as Seattle and Washington, D.C. — experienced a quadrupling of cases in August,” VTS, a commercial real-estate platform, said in a statement.
Cautious but preparing for post-Covid
Many organizations still are exercising caution and pausing plans to have staff return to the office.
Google, Apple, Amazon, Facebook and Starbucks are among the Fortune 500 companies that have announced delays in employees’ return to the office because of concerns about the spread of the Delta variant of Covid-19.
A poll by research firm Gartner of 238 executive leaders released in August found that 69 percent of organizations are delaying bringing back employees because of the virulence of new Covid-19 strains and the controversy over whether employers should mandate vaccinations.
Preparing for the post-Covid world
Still, many businesses are continuing to prepare for the post-Covid world by expanding their office footprint.
According to The Wall Street Journal, Google’s corporate parent, Alphabet, now is one of the biggest property owners in the Big Apple. Google announced last month that it would acquire an office property in Manhattan for $2.1 billion. With its $978 million acquisition of the former Lord & Taylor store in New York in 2020, Amazon has about 2 million square feet of space in the city.
Earlier this year, Facebook signed a lease for 730,000 square feet of office space in the iconic post office building across from New York’s Penn Station. The social network also acquired REI’s partially built headquarters near Seattle for $376.6 million. Meanwhile, Microsoft announced last month that it was delaying reopening its headquarters in Redmond, Washington, indefinitely. The tech giant had initially expected workers to return to the office Oct. 4.
According to Microsoft Corporate Vice President Jared Spataro, the software maker will hold off reopening its offices until it can do so safely, based on guidance from public health officials.
Market reaction to further delays subdued
Max Saia, senior director of investor research at VTS, notes that the office market has already faced previous delays, so now reaction to further uncertainty is more restrained than earlier in the pandemic.
“We’ve seen major tech companies delay their return to office at various stages throughout the pandemic,” Saia said in an email. “With each new instance, the overall market reaction is more subdued. As we continue to progress through the pandemic, more companies are formulating their return-to-office plans.”
“Even markets with high concentrations of sublease space, such as San Francisco, Seattle and Manhattan, have seen their total decline since the beginning of this year,” CBRE said in a press release.
Tenants continue to take advantage of concessions to lessors as an opportunity to get trophy and Class A space at reduced rental rates.
“In San Francisco and New York City specifically, vacancy for a top-tier product was near an all-time low when the pandemic hit, leaving little available for any deal hunters during the pandemic,” Saia said. “Going forward, high-quality space in urban settings seems to be a key amenity in areas with a remote-friendly workforce.”
Providing safe and comfortable workspaces
Balancing the need to provide healthy workspaces that are both safe and comfortable remains a challenge.
According to the Harvard Business Review (HBR), companies will need to provide more space for their non-remote workers because of social distancing. At least half of today’s remote workers will return to the office full time eventually, it says.
“America’s economic geography has shifted dramatically over the past several decades, shifts that are both accelerating and changing as a result of the Covid-19 pandemic,” University of Toronto Professor Richard Florida wrote in HBR. “It’s too early to tell how the landscape will settle. But these changes are and will continue to shape a new corporate landscape.”