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The office is dead.
… Long live the office
We’ve been here before.
The advent of the internet had people pondering if the traditional office was extinct. Then experiments like ‘hot desking’ and various remote-work schemes were later quietly shelved or scaled back. Turns out that humans are social creatures, and the office is critical not only to collaboration and results, but also in attracting talent.
What will the workplace – and the market for office real estate – look like in the years ahead?The most likely outcome will be nuanced and shaped by the pandemic’s influence on a host of trends that began playing out in the wake of the global financial crisis a dozen years ago: Workplace densities increased as tenants sought more efficient corporate real estate solutions. They favoured offices in well-connected, urban locations, and also demanded flexible space. More recently, sustainability, wellbeing and collaborative and community workspace have become central to many companies’ recruitment and retention strategies. Having analysed the effects of the pandemic on these trends, Nuveen’s real estate experts see four key outcomes, all of which we discuss more fully below:
- Overall demand for office space shouldn’t be affected dramatically but could reduce moderately as companies restructure their portfolios and accommodate greater workplace flexibility for employees.
- Demand for supplementary flexible space is expected to rise, but flexible operators will need to evolve their business models and industry consolidation may occur.
- Landlords, property managers and tenants will form closer alliances to enhance the experience and value of the office; they’ll explore new services for tenants with associated income streams for landlords, reinforcing the migration to a partnership model.
- ‘Active animation’ will drive workplace evolution, with an enhanced focus on collaboration, community, hospitality, health and wellbeing.
Disruption has always driven evolution in the office sector, and the pandemic may break the binary thinking that has frustrated change: It’s neither everyone in the office nor everyone at home.
Who needs an office anyway?We expect considerable differences in opinion about the best workplace solutions, but as corporate leaders continuously assess what is and isn’t working through the crisis they are citing experiences that suggest they will not abandon the office en masse: communications technologies that aren’t up to the job, loss of competitive edge and the experiences of younger or newer employees unable to learn from experienced colleagues or contribute meaningfully to meetings or projects.
One outcome of the social distancing measures expected in the workplace after the transition from lockdown may be that companies look to permanently reduce workplace densities, reversing that long-running trend.
Work-from-home (WFH) would allow for increased floor space per worker without the need for costly expansion. It would also accelerate an already prevalent trend for greater flexibility in workstyles. Even firms that value face time may come to appreciate that WFH can increase efficiency by reducing commute times.
So while companies will return to the office, we’re likely to see more WFH, too.
The future of flexible spaceClearly the pandemic will have a very significant impact on the serviced office market.
In the past few years operators offered highly creative and interactive communities for their member tenants and drove their profitability through smart densification of desk space around communal areas.
In the short term, we expect a major challenge for the sector. Operators will look to shed unprofitable centers as well as refit spaces to respect social distancing as researchers have found that open office floor plans increase the spread of illness among workers relative to lower density layouts.