Prior the pandemic, most businesses sign a lease for their office spaces because it is more cost-efficient than buying real estate. This frees business capital to allocate other operating expenses such as salary, recruitment teams, software, hardware, security measures among others. Basically, company owners lease a space solely for office and administrative reasons. Moreover, an office lease agreement grants a tenant specific rights to a property.
But when COVID-19 hit the world, business leader’s focus shifted on what exactly is the role of a physical office and its central contribution on corporate strategies from the limitations of work from home set up. And as the economic effect of the pandemic has eased, many are already considering going back on-site or a hybrid of work from home and work on-site set up.
So the question is: how is the demand for office space likely to change as a result from COVID-19?
New Normal in Office Leasing
Most companies choose leasing over renting for the following reasons:
Overall lease has a fixed price agreement over a period of time which helps the business to forecast their cash flow as well as other benefits:
-Location: a business space is better if it is in a prime location which is more available and affordable if you lease.
-Freeing up capital: your money is not tied up in real estate and you can use the extra fund for other operational needs.
-Less administrative work: owning any type of property requires administrative work such as taxes, registration, and other property management which can take you time and effort.
Given all these pros, many are still asking why they need to lease an office to go back working on-site if the lockdown has already proven that people can work remotely. Many are enjoying the freedom of a more relaxed schedule and most especially not having to face the dreadful morning commute.
But as remote work accelerates, its limitations have also been uncovered.
On an economic standpoint, an organization’s success still depends on face-to-face interactions and collaborations. When you’re trying to attract, nurture and retain top talents, the workplace plays a significant role in how employees perceive the dynamics of the business. Let’s remember that working from home exists for the sake of resilience rather than an emerging norm.
But according to Jim Coleman, Head of Economics in WSP UK
“I don’t think any business will want to go back to the way things were done, so that has an immediate implication for space”
This is where the new normal in office leasing comes in.
Inevitably, there is a definite reduction of occupier demand. Even Twitter CEO Jack Dorsey said his employees can permanently work from home if they wanted to. But the strange phenomena of this new work set up and the need to implement social distancing is to allocate more space for people to maintain a safe and comfortable occupying workplace. If before, companies squeeze their employees in a small floorplate, now they would need to ensure a larger office to safely occupy those who need to work on-site.
But again, it’s too early to gauge the longer-term impact on office requirements as of now. But watching out for trends can help you gather more data on what will benefit your business most.
Office leasing trends following the pandemic
Being aware of the changes in the business model is a must to effectively adapt and create business continuity plans to keep your company afloat during the pandemic. Therefore here are some potential trends in the office leasing industry we have to know:
1. Shift to work from home
Almost everyone has shifted to remote work since the lockdown was declared. And a lot of companies have adapted to this new work set up which postulates a possibility that office lease demand will decline.
Albeit many employees are enjoying remote work, many miss the collaboration and the social interaction in an office setting and are looking forward to offices reopening. Having no boundaries from personal to professional life gives people fatigue which makes them look forward to either going back on-site or an integration of remote and office work setup.
It is unknown whether or not the pandemic will catalyze the work from home trend but it is surprising that after COVID-19, owners will offer their employees this type of flexibility.
2. New corporate culture
Work culture is important for your employee’s general well-being. A company’s corporate ethos and culture reflect its purpose and value which can define the company. Having this is important because it creates a solid corporate culture that tends to result in a more successful outcome and less employee turnover.
But when the pandemic hit, these carefully crafted corporate cultures are stretched and a lot of adjustments have been made to a less worker density, fewer meetings, social get-togethers, and converted to virtual meetings.
One of the challenges for office lessors is to design and modify existing office space to attract and support a company’s established culture all the while following the health protocols yet still allowing social interaction and collaboration among team members.
3. Co-working
Co-working is becoming popular to a lot of companies because it provides flexibility in addressing their office space needs. However, the new health protocols brought by the pandemic will most likely have a material adverse effect on co-working spaces. This coworking industry appears to have peaked and may be diminishing.
One way to keep the business afloat is by allowing company owners to lease a space for short periods of time while they sort out how to function in this new normal of doing business without needing to enter into long-term lease transactions. This gives them leverage to still lease co-working spaces for their employees who are part of the skeletal workforce.
How COVID19 pandemic alter office leasing?
Amidst being aware of the trends, it is equally crucial for businesses to adapt. Despite the opportunity for “returning to normal” is starting to somehow begin to form, short-term and permanent changes in the office leasing setup have emerged.
Short-term and permanent changes in the leasing landscape:
These short-term and permanent changes can help the office leasing industry to adapt with the current situation and still promote the market without allowing it to become obsolete especially since most are well-adjusted with the remote work set up.
How to effectively adapt to this new normal?
A study from Deloitte found that 25% of offices have reopened and 64% of companies plan to return to the workplace by the end of 2021.
Therefore, the value proposition of office leasing will never diminish even if the current global situation is causing a shift in the real estate industry. Employees may now appreciate working from home and living in the province or suburban areas. They may value shorter commutes than braving the ever congested EDSA. This may cause shifts in the demand for additional suburban locations to accommodate the new work lifestyle and employers and company owners may be willing to accommodate by leasing office space in suburban areas with lower rents and more accessibility to employees. It is important to note that there is no one-size-fits-all solution to the future of work and office leasing. Changes will continue to shift as the impacts of the global pandemic keep unfolding.
The office leasing industry will try to strive to adapt and accommodate the needs of the business. At the same time, companies will likewise adjust not only on the office space needs of their employees but the operational needs of their organization. Because even if work from home is highly flexible and brings out results, there are still administrative functionalities that require in-office work. It takes both the leasing industry and business owners to work hand-in-hand to promote a better work environment that benefits not just the people but overall business functions and goals.
Food for thought: What kind of office space would businesses want?
While companies are aware that they could make do with remote work, they also have realized the importance of a better more resilient office space and safe working environment even if the pandemic clears out in the future.
Office leasing is not obsolete as long as it adapts to the changing needs of businesses by making office space as pandemic-proof, or at least pandemic-resistant.
by Raisa Aquino | October 2021
