Just a few months ago, many office landlords had a rather gloomy outlook for their industry.
After all, the pandemic that hit early last year forced most organizations to close their offices and shift to a remote workforce in order to help stem the outbreak.
But as vaccination efforts ramp up in the U.S., these same office landlords are feeling cautiously optimistic about the market. Companies are preparing for some workers to return—at least on a part-time basis—and some businesses are planning to increase their office footprint.
Indeed, Google recently announced plans to spend $7 billion on office space this year, creating as many as 10,000 jobs. Amazon, Microsoft, and Facebook also are expanding their real-estate holdings.
To be sure, many organizations remain hesitant about bringing back employees into the office. To get them over the hump, commercial real-estate businesses are enticing companies with deal sweeteners such as improved amenities.
The strategy appears to be paying off in some markets such as Atlanta.
Occupancy rates in Georgia’s largest city fell to about 5 percent when the worst health crisis in more than a century began early last year. In some buildings, that number now stands at 40 percent. According to Colliers International Senior Vice President Jessica Doyle, it is poised to go even higher as the availability of the Covid-19 vaccine increases.
“We do not see increases in rental rates, they are holding (them) firm,” said Doyle, who is based in Atlanta. “Where the trend is changing is in terms of the concession packages that are being offered.”
Landlords offer fancier break rooms, walking trails
In addition, tenants in the Atlanta market are getting 1.5 months of no-cost rent for every year they lease, increasing from half a month for every year leased offered before the pandemic, Doyle said
Office owners also are stepping up building improvements to lure businesses, according to Doyle.
A suburban Atlanta office owner recently promised to spend $50 per square foot on improvements, more than double the $20 rate that a similar deal would have generated two or three years ago, Doyle said.
Scaled-up amenity packages also are on the table and are aimed at helping companies offer perks to entice workers back to the office. Some examples are higher-end break rooms, collaboration areas and meeting spaces along with walking trails and concierge services such as dry-cleaning pickup.
“Amenities seems to be the hottest topic right now as it relates to tenants wanting to come back to the office,” said Colliers Senior Vice President Heather Lamb. “They need something that’s different in their office environment than what they can get at home so that employers can encourage their employees to return faster.”
One thing is for sure: The days of employees working five days a week in an office likely have come to an end.
A Global Workplace Analytics survey of 3,000 people working remotely during the pandemic found that 76 percent want to continue to telecommute at least 2.5 days per week, a so-called hybrid model of remote work.
Covid concerns continue to cloud outlook
While many business leaders have lamented the decline of company culture and staff collaboration with remote work, many appear poised to offer staff a middle ground. About 68 percent of employers want workers in the office at least three days a week once it’s safe, according to a PwC survey published in January 2021.
“The new million-dollar question is what kind of hybrid [work schedule will be offered[ because there’s a big difference between two days and four days a week of work from home,” said Kasey Garcia, a senior manager at commercial real-estate services firm CBRE. “They need to figure out how to plan their occupancy around what the reasonable flows are going to be of employees showing up on-site.”
Despite the potential amenity offerings, building improvements and lease deals, some businesses still aren’t in a rush to return to the pre-Covid 19 status quo.
For one thing, there are lingering questions about the pandemic as new, more transmissible variants forced parts of Europe to enter their third lockdown. Moreover, workers and companies have indicated in surveys, including one from the non-profit Partnership for New York City, that they expect to continue working from home when the crisis ends because the practice hasn’t hurt productivity.
“As a result, by design or default, most companies are heading toward a hybrid workplace where a large number of office employees rotate in and out of offices configured for shared space,” said another PwC report. “This model embraces the flexibility that most employees (and some employers) crave after working from home for months. It’s also a complicated way to organize the workweek and is likely to transform a company’s culture, employee engagement, the way the work gets done and how office space is used.”
Full rebound in office market not expected until 2025
Almost half of the businesses surveyed in January 2021 by CBRE said that they had no definite plans to return to the office and don’t feel any urgency to rush the process, Garcia said.
“It’s not going to be like flipping a switch,” Garcia said. “It’s not going to go from 0 percent to 100 percent occupancy, of course, because it’s going to some gradation to where they might bring 50 percent of their employees back or 30 percent. It’s going to vary by client.”
In addition, before large numbers of workers can return, mundane but necessary details such as managing the flow of workers entering and exiting elevators in skyscrapers while maintaining social distancing need to be worked out, according to Garcia
“It’s the subject of a lot of the engagements that my team has been doing,” Garcia said. “(There’s also) the on-site operation to ensure that things as simple as pressing the elevator button aren’t exposing you to additional risk.”
What is clear is that the impact of the pandemic on the office market will be felt for years.
According to Cushman & Wakefield, the U.S. office market will lose 145 million square feet of space between 2020 and 2021 in a baseline-case scenario. Vacancy rates on a global basis will hit 15.6 percent in 2022, compared with pre-crisis levels of 10.9 percent, a rate they won’t reach until 2025.
Rents will bottom in the first quarter of 2022 and won’t hit their pre-Covid highs until 2025, Cushman & Wakefield says.