Disruption, not destruction

By: J. David Chapman/July 29, 2021

I was interviewed this week about the health and outlook for office properties. Without thinking, I said that the events of the past year have been a disruption, but not destruction. Our office markets are still here and there is demand for space. However, that demand and the needs of our occupants have changed. Owners, landlords, and property managers must change with the needs of our users, occupants, and customers.

For many organizations, the results of the pandemic-driven shift to remote work have been better than expected. Surveys confirm that remote working is here to stay; more than one-third of their employees will continue to work from home. This has prompted leaders across industries to rethink where their employees should work long term and how this could change their need for office space. Seventy-six percent of the CEOs surveyed indicated their organizations would need less space moving forward. With real estate and facilities costs representing 2-5% of an organization’s revenue, a reduction in space could significantly drive cost savings in both operating costs and capital expenditures.

The amount of space that a company could reduce will be directly proportional to the frequency with which employees need to be in the office to accomplish their work, and if they can share that space with other workers. Depending on how aggressive organizations are with employees sharing space, it might be possible to reduce their real estate and facilities costs by 10% or more. Many companies are utilizing the remote-working model to recruit workers from other locations, thereby opening up a much broader talent pool and further reduction in their space needs.

Having said all that, I don’t believe that one-third of workers will continue to work from home. And of those that do continue to work from home, I believe many will have times when they are in the office and will require their own working space. I also think it will open up opportunities for entrepreneurial-minded owners and property managers to present remote, shared-space options. This includes satellite options away from corporate office buildings and closer to employees’ homes for meetings and work to allow employees space outside of their personal homes to work without being in their corporate office. Office space is being disrupted, but not devastated.

J. David Chapman is an associate professor of finance and real estate at the University of Central Oklahoma (jchapman7@uco.edu).