How Will COVID-19 Impact Office Leasing? A Glimpse into the Future

How Will COVID-19 Impact Office Leasing? A Glimpse into the Future
Guest blog by Noelle Fauver. Noelle is a contributing editor for 365businesstips.com. She has a B.A. in Communication Studies from California State University, Northridge and experience in marketing, copywriting, and small business management. She volunteers on the board of the San Diego American Marketing Association as the Event Experience Chair to help local marketers in the area develop their professional repertoire and connect with other professionals. She loves curling up next to the fire with a good book on a rainy day with a bowl of homemade soup. But most of all, she loves marketing.

The COVID-19 pandemic has caused enormous amounts of societal disruption. One of the biggest changes that many Americans have experienced is the dramatic shift toward working from home. Tall office buildings that make up the bulk of urban downtown areas stand empty, and thousands of suburban office parks aren’t doing much better.

That’s led many business owners, real estate investors, property owners, and office-bound professionals to ask: what will happen to office leasing in the future?

The short answer is that no one knows for sure. However, given that working from home was already becoming more and more popular across a number of industries, many experts speculate that the pandemic has only accelerated this existing trend. However, there’s a lot to unpack.

Let’s take a look at some of the biggest office leasing effects that are likely to occur as a result of the COVID-19 pandemic.

A Rise in Working From Home

As previously mentioned, working from home has been on the rise. In 2020, about 3.6% of American workers worked from home at least half the time — a number that’s grown by 173% since 2005. And by 2028, it’s estimated that 73% of all departments will include workers who telecommute.

Just taking a quick look at those stats, it’s pretty clear that working from home is on the rise and will continue to be. And, as the pandemic continues to rage, it’s unlikely that office managers who sent employees home at the start of the pandemic will think it’s wise to start bringing people back into the office.

What does that mean for leasing? A massive decrease. So far this year, industries like tech, finance, media, and advertising have seen huge numbers of companies choose not to renew their leases. Many companies, especially smaller startups, are now entirely remote.

There are, however, a number of benefits to the increase in remote work:

Hiring managers now have a wider pool of applicants to choose from, as location is less important than before.
It’s easier than ever to reduce your company’s carbon footprint, as employees don’t spend hours on the road each day heading to and from work.
Companies are saving hundreds of thousands of dollars or more by not paying for an office location, utilities, heating and air, and the countless other expenses that come with working from an office building.
Office and retail space may see a dip in prices, which is good news for renters.

Unfortunately, not everyone is coming out on top. Real estate owners and property managers are beginning to be concerned that this will seriously affect their own businesses. Especially in large, luxurious high-rise office buildings, the lack of tenants but continued cost of overhead has already started taking a toll.

The future isn’t all bleak for offices, though.

The Importance of a Central Hub

As the months of remote work wear on, many professionals are starting to realize the importance of having an office space to base their work life out of. For many, working from home has a fair share of downsides: it’s difficult to manage work/life balance, many feel trapped at home, it’s harder to log off at the end of the day, and many feel a lack of collaborative and motivating atmosphere.

Many team leads and managers may also note that there is a decrease in workplace synergy among coworkers, as the lack of office space makes it harder to build a team environment and enthusiasm. While tools like Zoom, Slack, Monday.com, and others make it easier than ever for remote workers to check in with each other, hold meetings, and stay on top of group projects, there’s nothing quite like having everyone in the same room collaborating.

Additionally, many people struggle feeling that they are unable to separate their work-life from their home-life. Work-life balance is critical for a healthy mind and good attitude at work, but if your workstation is set up in your living room, it can feel easy to check a few emails before bed, or interrupt a family dinner to check in on a project’s progress.

All this means that many companies may be planning on investing in a new office space once the pandemic has ended and it’s safe to return to work.

A New Compromise?

Some companies may simply resume business as usual once it’s safe to return to an office, and have all employees step right back into their workday commutes. However, there is a growing trend that’s likely to occur among many other companies.

While having an office space is important, the new work-from-home-normal may change the way that companies choose to utilize their office space. Here are a few examples:

Larger companies that used to rent or own a large office space for their entire workforce might instead opt for a smaller, flexible office space, assigning employees a set number of days that they’re expected to come into the office, but allowing them to work from home the rest of the time. This balances working from home with office work while saving the company money.
Some companies may choose to rent out an office space only for their core team, and utilize remote workers, contractors, and freelancers to take care of parts of the workflow that can be more easily handed off. This keeps the tight-knit team energy while also saving costs on office space.
Coworking spaces, which had previously seen a decline after the failure of WeWork, may also see a rise in popularity once the pandemic is over. Many companies will choose to remain fully remote to save on costs, but employees might still want the feeling of heading into work and being surrounded by peers. If that’s the case, coworking spaces may see a renaissance.

All of this may come as mixed news for property managers and real estate owners. It’s unlikely that office spaces will go completely out of style; remember: there are still plenty of industries that do require office space, like dental care, engineering, pharmaceutical development, and much more. However, the fact remains that the demand for office spaces may see a marked decline, even after the pandemic has passed. Ultimately, those with the most innovative business models who are able to adapt to the new environment will be more likely to survive or even thrive in the new post-COVID-19 office leasing environment.