Pandemic’s effect on office real estate

By: J. David Chapman/April 23, 2020

Real estate in the coming months will be affected by the coronavirus pandemic. To what degree will likely depend upon the duration of the economic shutdown needed to corral the health effects of the virus on people.

We consider two scenarios. The first is a V-shaped recovery where the economy comes back very quickly.

The second is a U-shaped recovery that assumes the country will take a little longer to solve the health issues and therefore we will remain in a partial shutdown situation for a longer period of time. The longer our economy is shut down, the longer it will take and more painful the startup.

Even under the best-case scenario of a V-shaped recovery, there will be significant disruption to all aspects of real estate. Specifically, I want to consider behavior changes in office space.

In the last week, I have seen many real estate gurus nationwide predict a change in the office real estate market based on changed behavior due to the coronavirus pandemic. The problem is the experts don’t agree and have contrary views of what the stay-at-home period will do to office demand. Leaders of some industries have claimed success in employees working from home and declared they will need less physical footprint and less square footage. Some other consultants and pundits say we will look back at this time as one of the least productive periods in business history as employees work at home while dealing with significant distractions to adequately performing their work duties.

Others go a step further and claim the pandemic will create a need for more office space. Assuming that most workers cannot, or will not work from home, many believe the recent trend to compress more people into less space will be reversed and plans will be developed to give employees more space and a 6-foot strategy to give employees a safe amount of breathing room.

Recently, we have seen designers go from 250 square feet/employee to 200 square feet/employee in new office buildings. I look for architects to be asked to consider employee fears and go back to the larger square footage per employee.

None of this takes into account Oklahoma’s reality that office space occupancy continues to be somewhat dependent upon the price of oil. The price of oil probably has a bigger impact on office occupancy than any preference or even ability to work from home in Oklahoma.

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