THE RECESSION LED TO CHANGES IN OFFICE OCCUPATION. WILL COVID-19 DO THE SAME?
The 2008 financial crisis created a severe impact in all markets, causing many companies to rethink the way in which they worked. A large number of offices closed and there was a clear trend towards optimisation of space as companies sought to reduce fixed costs to improve cash flow. This resulted in a significant decrease in the occupancy rate per employee, which went from 12 - 14 meters squared per employee to the current rates of between 7 - 9 metres squared.
It is too early to assess what consequences the ongoing COVID-19 crisis will have on office occupation, but it is clear the pandemic will prompt some rethinking about the role of the office. COVID-19 is resulting in an unprecedented experiment in mass remote working. Many companies will use that experience to think about their work practices in the medium/long term, once the current state of shock has passed. The questions that will top the review list is how productivity was affected by staff being forced to work from home, and whether a new role for leased space is needed. If companies view telework as being successful it may mean that companies assign more of their staff to remote work and repurposing the office environment.
Furthermore, the release measures from lockdown are likely to require office spaces to be healthier, with increased hygiene measures, more open spaces and well connected workstations. Technology will be very important to ensure that all workers are well connected during this process to maintain productivity levels.
HOW IS DEMAND RESPONDING AND HOW WILL IT RESPOND IN THE FUTURE? IS THIS STANDSTILL IN DEMAND GOING TO LEAD TO A DECREASE IN RENTS? WHAT WILL HAPPEN WITH ANY ONGOING PROJECTS?
COVID-19 has slowed down demand, reducing the completion of already advanced lease negotiations. In addition, space requirements in the initial search phase have been halted until the situation has returned to normal or at least some of the lockdown measures have been relaxed.
At the start of the year we forecast that demand would be lower than the previous year with office space take-up of 300,000 meters squared. The standstill in the market due to coronavirus has led us to take a more conservative approach, with forecast take up now ranging between 150,000 meters squared – 175,000 meters squared in Dublin.
Moreover, we forecast a decrease in the size of the space demanded as a post COVID-19 business recovery response. Companies will need to address fixed costs to restore cash flow. Longer term assessment of telework and the desire of users to move into buildings with high sustainability ratings may prompt other changes. Healthy buildings which have WELL or LEED sustainability certification mean that companies can more easily invest in the health, wellbeing, productivity and efficiency of workers will be the most sought after.
The impact of this economic crisis on rents in the short term will be to limit the increase in rents that had been forecast in previous months. Rents will not go down in the short term, but we do expect the incentive packages for Tenants to be increased.
The standstill in letting activity and ongoing construction will lead to delay in the delivery of projects currently underway. In Dublin, investors have seen an opportunity to pause and look at what companies' real needs will be after COVID-19 and to develop their properties along those lines. A potential increase in working from home as a long term effect may also mean that European cities currently suffering congestion problems during rush hour will see an improved environment.
“CAN CO-WORKING SURVIVE?"
One of the sectors under the closest scrutiny and where there is most uncertainty are the flexible work or co-working space.
This space is struggling on two counts in the current crisis. First because of the widespread shutdown of activity which is affecting all people means the space is simply not being used by its entrepreneurial user base who are back to working from home. Secondly many corporate users because they are not tied to traditional lease arrangements do not control the premises or the activities carried out in the centres. Lack of obligation means they are free to abandon business centres for the time being.
There has been a great deal of uncertainty in this sector and many questions have been raised how will activity return to flexible work space? Will users be more reluctant to share space with other users in a closed environment? Will user demand reduce? Or working from home will there be an increased demand from companies seeking additional work space to socially distance workers once the lockdown restrictions have been removed?