Ever since American office buildings emptied out at the beginning of the COVID-19 outbreak, CRE professionals have puzzled over how a pandemic might fundamentally change the nature and value of existing workplaces.
Seven months into mid-pandemic business operations, a lot of industry research is now revealing that property owners may need to adjust to several lasting changes, but tenants are still demonstrating healthy demand for quality office buildings. A panel discussion at CRE.Converge Virtual 2020 dug into some of the details.
Shifting Tenant Priorities
The pandemic has accelerated several trends in office design that had started to emerge before 2020. Those include desires for touchless technologies and health-conscious design.
“On the design side, we are seeing clients who were just going into construction saying, ‘Time out, I want touchless toilets,’ which by the way are very expensive, ‘I want touchless doors,’ which are also expensive, ‘I want to crank up the mechanical system, I want UV everywhere,’” said John Adams, Southwest regional managing principal at Gensler. One client “completely redesigned the cafeteria so you don’t have to touch anything. You get your food delivered to this little cubby… that opens up on its own. It’s really interesting what the best practices are going to be.”
Tenants’ desire for improved air quality is stoking interest in indoor-outdoor workspaces, said Robert Paratte, executive vice president for leasing and business development at Kilroy Realty Corp. Those spaces include sheltered balconies or rooftop decks that are the size of conference rooms, as well as building lobbies and meeting rooms with large windows that can be opened.
The need to provide cleaner air, less dense environments and other measures to prevent disease spread is also prompting developers to rethink some design fundamentals, such as how many elevators should be included in a new high rise to safely and efficiently move workers to their offices.
While workers’ reactions to the sudden shift to remote work are mixed, the CRE.Converge panelists agreed that 2020 has made one profound change to American work culture: The 9-to-5 workday is dead.
“Employers have learned through this crisis, and I think it’s a good thing, that people don’t want to work 9-to-5. I think that was a generational thing,” said Kevin Smith, executive managing director at Cushman & Wakefield.
Big tech companies started the trend of allowing talent to alter their working hours to match the times when they could be most creative and productive, as well as accommodate other aspects of their lives. Expanded technology adoption and this year’s crash course on how to telework has convinced other Americans and their employers of the benefits of a nonconventional workday.
As a result, CRE owners will need to adjust building operations to accommodate longer arrival and departure windows, and longer stretches of the day when tenants will need full building services.
Future Demands for Office Space
All of 2020’s turmoil, however, has not crippled market demand for office space. In Gensler’s “U.S. Work From Home Survey 2020” 70% of respondents said they wanted to work three or more days per week in their employer’s office. Meanwhile, market activity this year has demonstrated employers’ continued interest in securing prime office space.
“We have seen during the COVID period some major leases signed on behalf of tech firms. As we hear of so many tech firms looking at long-term incorporation of some of these work-from-home strategies, at the same time, they are being very opportunistic” in real estate deals, said Kevin Bender, managing director at JLL.
In addition to securing expanded or choice space, tenants are looking to execute certain strategic goals. Some companies, for example, have decided to split their operations among multiple properties to accommodate employee preferences for work locations, to take advantage of tax opportunities, or to mitigate against business interruptions due to natural disasters and improve resiliency within their companies. That trend is creating opportunities for some suburban locations and smaller cities. Meanwhile, demand for office space in major urban centers persists.
“Companies are locating in urban areas because that’s where the talent is.” As long as young, highly talented, educated employees from top universities want to work in the city, you are going to find these companies locating there, Paratte said. Kilroy interviewed some of its clients about their location preferences. “The feedback was interesting. They said they are looking at some suburban locations due to some employee requests to do so. But their HR department echoes what I just said. They have trouble attracting someone from Stanford, for example, if their first office is going to be in a suburban location.”