March 19, 2021
With progress picking up in the U.S. push for widespread COVID-19 vaccination, the forecast for a return to normalcy in 2021 still remains murky.
One of the biggest questions hanging over the future of the American workforce is whether or not companies will make a full push to return remote employees to the office. And if they do, how soon will it happen?
This uncertainty weighs heavily on the commercial real estate sector.
In the third quarter of 2019, there were 57 million square feet of leased office space in the U.S. By the third quarter of 2020, that was down to 26 million square feet, according to Clever’s Real Estate 2020 Home and Office Survey.
Prices for office space have plummeted in typically big markets in California, Texas and across the Northeast. The need for office space is expected to drop by 15% this year.
Findings from Clever’s survey paint a grim picture for the future of office.
Among 1,000 remote and in-office workers who were surveyed, 63% said they prefer working from home and 29% said they plan to stay at home even after the pandemic, signaling that many companies are willing to accommodate the shift.
Many companies are realizing the savings they can generate by either downsizing their offices or committing to more flexible policies for their workers. Dell, for example, estimates it can save $12 billion in annual saving by encouraging remote work.
In San Francisco, Salesforce has indicated that most of its employees will be permitted to work from home at least part of the time. The company is the city’s largest private employer and the owner of its tallest building.
Ford Motor Company this week told about 30,000 employees worldwide that they will be allowed to work from home indefinitely with flexible hours approved by managers.
The writing appears to be on the wall that some of the changes brought about by the pandemic will be lasting.
Even on job search websites, such as Indeed, listings for job openings are increasingly mentioning “remote work” and “work from home” in their descriptions as a perk of employment, according to a report from the company.
As Forbes noted recently, the path forward for office space will largely be dictated by how much lease prices fall and how hard employers decide to push for a return once pandemic safety has improved to a significant degree.
To forecast the commercial real estate market, keep your eye on rents and on distressed property levels. But also monitor vaccination rates and how employers are reacting. They will be the main decision makers on the scope of a shift to permanent telework, and those decisions will determine the future of office space.
The watchwords in the years ahead will likely be “ blended environments,” where employers strike a balance between in-office and remote employees, in many cases downsizing office space to do so.
Clever, a real estate agent referral service, concluded from its survey that developers will increasingly have to focus their efforts on making workspaces attractive to both employers and their staff, providing amenities that justify the investment compared to savings and lifestyle advantages of telecommuting.
“Fewer in-office employees will undoubtedly negatively impact commercial real estate in the coming years, and commercial real estate developers will need to make adjustments in order to stand out to attract potential lessees in what will be a competitive market after restrictions subside,” the firm said.