Is the office sector dead? It’s a difficult question to answer. With America’s extended COVID-19 battle turning many office towers into vertical ghost towns and the acceptance of remote work growing among employees who have been working in their pyjamas since April, office space certainly appears a less valuable asset than it did a few months ago.
Some, however, like LightBox principal analyst Dianne Crocker, believe worries over the future of the office sector are overblown.
"While COVID has certainly triggered widespread changes in how companies think about office space, it won’t make offices obsolete,” she told MPA by email. “The real challenge for office owners will be to either give existing tenants compelling reasons to renew leases and maintain their current footprint or think of creative ways to repurpose their space to meet demand for other uses, like coworking or storage.”
Over the longer term, Crocker expects to see a more efficient use of office space that provides diverse options for employees, turning the average office into “a strategic tool” rather than just a workspace.
While Crocker says she has noticed a migration away from downtown offices to suburban locations, she feels CEOs “may opt to not abandon a downtown office location entirely, but instead elect for a smaller one downtown while also opening smaller, satellite suburban offices."
But at least one expert sees remote work having a pronounced, long-term impact on the demand for office real estate. Moe Vela, chief transparency officer at TransparentBusiness, a firm providing solutions for managing remote work teams, says working from home will, even if the coronavirus is brought under control, lead to a dramatic rise in unwanted office space.
MPA spoke with Vela on Friday. The following interview has been edited for length and clarity.
Mortgage Professional America: Let’s start with the big question: Is working from home going to make office space obsolete?
Moe Vela: To answer that, we have to go back to square one, which is, I think, that remote work is our new normal. And I think it’ll be our normal moving forward post-pandemic. I predict that it will not be 100 percent. I think we’re going to be living in a hybrid world of remote and traditional.
Office space will not become completely obsolete. Will the sector and the industry be impacted? It already is, and it will continue to be. You’re going to ultimately have 30 to 50 percent of office space become vacant.
MPA: There was a dramatic 69 percent year-over-year drop in office transactions in July. Does a recent drop in transactions necessarily mean a long-term drop in demand? Or is it more of a reflection of an inability to complete transactions during the summer?
MV: I think it’s more of a long-term situation. But I don’t think it will continue to drop. I think it will level off and remain at the levels you’re looking at now.
Let’s talk about the challenges, by the way, because it directly affects the drop in transactions and such when it comes to the commercial real estate market. For commercial real estate owners and landlords, in order to get their tenants to bring their workforces back, think about the challenges that confront them.
It's not just an employer and the landlord and the owner saying, “Your office space is sanitized.” That’s not enough. Everyone’s touching the door handles at the front entrance. Everyone is touching elevator buttons. You can’t socially distance in an elevator. Everyone is touching the front desk where they have to swipe their badge.
Surfaces are being touched in every part of the ecosystem in commercial real estate: The conference room table, your break room, the refrigerator door, the bathroom. The challenge is monumental, and for that reason I believe that you’re going to see [demand] level off and occupancy rates are going to remain dramatically lower than they were pre-pandemic.
MPA: Don’t some of those concerns go away when a vaccine gets rolled out?
MV: I don’t think so. I’m told very clearly when I get my flu shot that that is not a guarantee that I am not going to get the flu. Very few vaccines are 100 percent foolproof. Until we get the virus under control through testing and tracing and people are participating in mask wearing and preventative measures, I don’t think a vaccine is the end-all, be-all. I don’t think it solves all of the challenges to the commercial real estate market.