Zoom Video stock hit a record high as of June of 2020. The teleconferencing company is just one of the tech companies that became a necessity due to COVID-19. Within just a few short months of the first case of COVID-19 reported in the U.S., tech stock soared. Google’s parent company, Alphabet Inc., watched its stock price increase by roughly 15% from March to April. And Microsoft Corporation’s stock price increased by 25% during the same timeframe. Living rooms and home offices became corporate conference rooms and doctors’ offices. As the highly infectious COVID-19 virus spread, so did work-from-home culture—and companies had to adapt.
The changes in physical workspaces and the large-scale adoption of work-from-home culture have left the future of commercial property hanging in the balance. Have businesses now discovered a workable plan to reduce their physical footprint? Or, have companies and employees found that work-from-home life isn’t the ideal work situation they thought it would be?
The Data
Globest reports that, as of June 2020, companies in the office sector had about 30% to 50% more space than necessary. Before the novel coronavirus, businesses occupied sizable facilities, even if employees could work remotely. The large, trendy space enhanced the business image. Now, some of this extra space may no longer be needed. Prior to COVID-19, the metropolitan areas had roughly 10% vacancy in the Class-A office space sector. Globest explains that availability could scale to as high as 25% as leases expire and tenants scale back their office space.
However, Globest recently published insights and data from a global real estate firm. The survey data suggests that, while working remotely will remain a part of the equation for now, companies will still need their office space. As some employees return to the office, they quite literally need the “space,” to account for social distancing. The data revealed that companies may even need to increase their office space by 15%-20%. It is important to note that there will be no necessary increase in office size if half of the survey respondents allow their employees to continue to work remotely, as they said they would.
The Employee Perspective
There may be further data that suggests office footprints won’t be diminishing any time soon. One survey found that 70% of workers would like to spend most of their time in the office, and only 12% of employees want a full-time work-from-home scenario. Those who wanted to work primarily in the office valued socializing and face-to-face conversations with co-workers. There is an element of impromptu collaboration that can happen in a setting with other employees that doesn’t come as naturally through scheduled teleconferencing.
Additionally, some employees faced limitations regarding their physical work-from-home environment. One source explained that 70% of millennials and Gen Z admittedly experienced distractions or didn’t have a dedicated workspace. In addition to these issues, there is no commute or physical distinction for the employees to separate themselves from their jobs.
Tenant’s Market
Even if employees prefer the office setting, it seems work-from-home culture will remain intact for the foreseeable future. As leases expire and businesses attempt to recover from the lockdown, there may be quite a few vacancies to fill. This shift transforms the market from a landlord’s market to a tenant’s market. Prospective tenants will have more negotiating power, and could ask for a discounted rent rate for a shorter time frame. In this case, it’s best to hire a commercial advisor to handle appropriate lease terms and negotiations.
Landlords and property owners who are feeling the affects of work-from-home culture should strongly consider hiring a commercial real estate advisor. While a pandemic-induced economic downturn is new to all of us, the cycle of commercial real estate is not new to experienced advisors. HBRE’s team of commercial real estate advisors are skilled in both tenant and landlord representation. Even if work-from-home culture is here to stay, they know how to advise their clients on the best measures for their properties.
If you are interested in learning more about investing in commercial real estate, or if you have questions about buying, selling, or leasing a commercial property, please contact an HBRE advisor. Our team of experienced CRE professionals have the skills and insight to assist with all property transactions. To reach out to us directly, email [email protected] or call 615-564-4133.
