PROMES Real Estate
In the post-pandemic era, has the commercial real estate market come to a turning point when facing changes in corporate office demand ? （Part One）
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The outbreak of COVID-19 in 2020 has caused social and economic disruptions worldwide in just a few months. The shutdown of the supply chain caused by the city’s lockdown has impacted all industries for several months and consequently affected the global commercial real estate market. With the pandemic spreading in cities, companies started to adapt work from home policy to minimize the number of employees going into the office and prevent them from infection. Thus, most of the employees work remotely or off-site in order to maintain normal company operations. And subsequently the large amount of empty office space has led to a revolutionary transformation in office demand in the commercial real estate market. However, has such a shift in office demand become a crisis for most building landlords, or presented an opportunity for them to develop a more diversified solution instead?
Change of Needs for Post-pandemic Office Space and Its Causes
With the pandemic easing and the rising coverage of vaccination, governments around the world have been gradually lifting the COVID-19 restrictions, and the world has now entered the post-pandemic era with the economy gradually recovering. Nevertheless, not all companies have survived from the severe impact of the pandemic, in particular some manufacturing industries as well as the hospitality industry, who were forced to go out of business temporarily or permanently, losing a substantial portion of their operating income. Consequently, those affected industries could only reduce their demand for office space or decide not to renew their leases so as to cut back their operating costs.
On the contrary, industries such as technology, software, and insurance that are less affected or even benefited from the pandemic to have sufficient growth momentum have transformed their demand for office space due to the instability resulting from the pandemic. Such transformation puts a greater emphasis on anti-pandemic equipment in office environments and general well-being of their employees, implying that traditional office spaces are no longer able to meet the ever-strict corporate office requirements in the post-pandemic era.
The First Turning Point：Office Space Demand Shifted by Corporate Operating Model
在疫情肆虐下，處在科技、軟體和保險…等產業的公司只能讓大部分員工採取居家辦公模式（Work From Home, WFH） 遠端完成業務，以維持企業正常營運。然而，隨著後疫情時代來臨，全球31個市場裡約有6成的員工希望能維持遠距辦公，但又能適時有面對面工作與合作的機會（註1，2021 Microsoft Work Trend Index） ；因此，為了兼具遠距的彈性與面對面交流的功能，越來越多企業採納混合工作型態（Hybrid Work Model），依照公司業務發展與員工的需求，靈活地調整實體與遠端辦公的比例。
With the outbreak of COVID-19, enterprises in tech, software, and insurance industry, and so forth, had to allow most of their employees to work from home so as to keep the business operation normal. With the advent of post-pandemic era, about 60% of employees surveyed from 31 markets around the world hoped that telecommuting could be maintained; nonetheless, they also hoped to have the opportunity to work face-to-face and collaborate in a timely manner (Ref 1, Microsoft Work Trend Index). Therefore, in order to combine the flexibility of telecommuting and face-to-face communication, more and more companies are adopting the Hybrid Work Model, flexibly adjusting the ratio of physical and remote work based on the company's business development and employees’ needs.
With the implementation of the hybrid work model, enterprises no longer require all employees to work in a specific office space; instead, they can choose to work remotely in different locations according to their company policies for the hybrid work model. Does this mean that the demand for office space will shrink due to telecommuting?
According to Jones Lang LaSalle Global Research in 2020 (Ref 2), while corporate offices may be shrinking in size since they no longer need as much space to accommodate employees as they once did, there is not so much a demand shrinkage while a shift to better quality and more flexible office space. The reason for this is that nearly 45% of employees feel that working from home does not allow them to strike a balance between life and work. Also, working from home and other locations, such as cafes, make them suffer from distractions and the loneliness of not being able to communicate with colleagues, resulting in lower productivity (Ref 3).
Nonetheless, take Apple Incorporation for example, some employees who live far from the office have reported that switching back and forth between remote and physical work mode consumes more time, as well as mental and physical effort, in commuting. Instead, they would like to work from home so that they can focus more on being creative and doing excellent work (Ref 4). Therefore, companies' demand for office space is not disappearing, but rather they are seeking a more resilient work model to meet employees’ needs for the office space under the hybrid work type.
For instance, Google adopted a hub-and-spoke model in 2021, setting up satellite offices near the residence of employees, while Amazon announced in the same year that it would invest $1.4 billion dollars to set up satellite offices in six cities, referring to Dallas, Detroit, Denver, New York, Phoenix, and San Diego (Ref 5).In this way, enterprises can satisfy their employees’ needs to work remotely and improve efficiency.
Furthermore, corporate demand for offices is also shifting to coworking space with resilient leasing plans and space. The key to this phenomenon is that the average lease for traditional office space is about five years or more. If a pandemic breaks out, causing low operating income, enterprises will not only have to bear the cost of heavy rent, but will also be exposed to the risk of being unable to recover their initial fitout costs, especially for startups. In addition, the business expansion will also be hampered by the length of the lease and cannot be flexibly deployed. Therefore, coworking space can help enterprises transform one-time capital expenditure for offices into monthly operating expenses, significantly reducing the cost and increasing the financial stability, as well as operational flexibility (Ref 6).
A well-known example in 2020 is the leasing of 70,000 square meters in New York City by multinational technology enterprise IBM to WeWork, a U.S. coworking space brand (Ref 7). Additionally, Novartis in Taiwan leased an entire floor of Cathay Minsheng Building from JustCo, a Singapore-based shared workspace brand, for its 600 employees to work in (Ref 8). As a result, the eager demand for coworking space, and the growth in demand from companies to keep their operations resilient, has led to a market value of 13 billion U.S. dollars for coworking space by 2024, with the number of units reaching 41,975 (Ref 9).
照片來源：Ergonomic Trend 文章資料（註9）
In summary, under the hybrid office model, the demand for office is no longer confined to conventional spaces, but has turned to more flexible office space, such as satellite offices or coworking space, to satisfy the employees’ needs of working remotely and also to allow enterprises to have more elasticity in their capital expenditures for office space.
The Second Turning Point：Greater emphasis on anti-pandemic equipment in office environments
In addition to the demand for elastic office spaces, the pandemic outbreak has made companies put more emphasis than ever on the level of pandemic prevention and employees’ health in office environments. This phenomenon has made the WELL building standard and concept a trend in the commercial office market, and the so-called WELL building concept is a place where users’ health is the core, satisfying people’s physical, mental, and social needs (Ref 10). The reason why this concept has become popular in the post-pandemic era is that about 90% of people believe that it can meet their requirements of pandemic prevention and maintain the health of users in the long term (Ref 11).
Although enterprises now adopt the hybrid work model, there are still workers in specific divisions who have to stay in the office for work, such as those working in the facility or research and design division. Thus, in order to reduce the risk of infection, companies can plan their offices based on the WELL building standard and introduce equipment related to pandemic prevention. For instance, Jones Lang LaSalle’s office in Pudong, Shanghai (Ref 12), is equipped with an indoor air purifier to monitor and filter viruses and germs. While for JustCo, a Singapore brand of coworking space, utilizes technology, such as face recognition and social distancing monitor , to reduce the risk of infection in office space (Ref 13).
From the above examples, it is clear that corporate offices in the post-pandemic era are placing more emphasis on pandemic prevention measures to protect employees’ health so as to reduce the impact on companies' business.
TO BE CONTINUED......
照片來源：People in Law 文章資料（註14）
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