Offices Will Change, Office Demand Won’t
Even as the impact of the COVID-19 pandemic has had unprecedented effects, in one way we’ve seen this movie before. “In the 1970s, futurists believed that the newly-born internet could be a solution to the daily commute, and a potential nail in the coffin for the use of commercial office space,” says a report from MetLife Investment Management.
Today, similar predictions are being made as stay-at-home orders have shifted the work of most office-using employees to their homes. The argument holds that both employers and employees will discover that working remotely is more productive and more cost-effective, and there goes the impetus for office tenants to renew their leases, much less shop around for new space.
In fact, MetLife Investment Management says in its report, “Back to Work: Office Demand in a Post-Pandemic World,” the question warrants more nuanced consideration.
“We believe that forecasting the effects of COVID-19 on office demand requires the consideration of four factors,” the report states. “These include [1] the number of workers who will permanently begin working from home full time, [2] the number of workers who will adopt flexible schedules such as working from home one or two days per week, [3] how firms will change space needs as a result of flex working, and [4] how firms will change layouts to be better prepared for future pandemics.”
All of these factors will make an impact on how offices are configured, as well as how employees use the space, with near-term implications for lease structures. Yet, in the long term the MetLife report sees the impact on office usage per se to be in line with the “de minimis” impact of the internet on space demand over the past few decades.
“By 2030, we expect U.S. occupied office stock to reach 8.1 billion square feet, which represents average annual growth of 1.4% from today’s approximate 7.1 billion square feet, and in line with the long-term historical average growth rate of 1.5%,” the report states.
However, recent news reports have Citi and other large-scale tenants engaging in talks with suburban landlords, signaling the potential for shifting at least some operations away from CBD occupancy. Exactly where that 8.1 billion square feet of office is occupied will be a question to study in the coming years, the report says.
For comments, questions or concerns, please contact Paul Bubny
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