Tenant strategies for office space post-COVID-19

Jim McGrath
Executive managing director,
Newmark Knight Frank

Over the past 90 days, the economy, in Denver and nationally, has experienced severe impacts by the unexpected arrival of the COVID-19 virus. In addition to restaurants, bars, music venues and sports stadiums, many offices have been closed under stay-at-home orders and companies have been forced to adapt. While the macro problem cuts across industries and affects many sectors in the commercial real estate arena, the scope of this article focuses on tenants that occupy space in office buildings.

Sam DePizzol
Executive managing director,
Newmark Knight Frank

The concept of remote working has been around for many years and, in general, was used sparingly by companies and employees; that is, until about the second week of March. In response to social distancing guidelines and stay-at-home orders, many businesses were forced into the experiment of how to successfully maintain business operations with few, if any, employees physically working in the office. By most accounts, the work-from-home experiment has been successful, and employees’ and businesses’ perceptions of remote work have changed as the pandemic exposed the convenience and effectiveness of virtual meetings and calls. Prior to COVID-19, corporations had pushed to keep employees in the office to enhance productivity by building communal break areas and other amenities that catered to group needs. However, recent reports indicate that up to 55% of employees would prefer to work from home on a part- or full-time basis. The lack of commute, increased productivity and additional time with family are cited as the primary reasons.

Before looking to the future, it’s important to consider how the density of office space has increased over the past seven years. As the price of office space has increased steadily, companies have elected to put more professionals in less space. Using a broad industry metric, the ratio of square footage per employee decreased from approximately 250 square feet per employee to approximately 150 sf per employee during this time. While this often was expressed as a way to improve employee collaboration, it was simultaneously an effective cost-saving measure. Company after company embraced the “open plan” office and, in many cases, created environments that had an unintentional negative impact on productivity due to noise and visual distractions.

Looking forward, life will go on and business will continue – there will certainly be differences and we will adapt. What will happen to offices, though? Most people within and outside of the industry have an opinion on whether employees will continue to work from home rather than returning to an office. However, there is not a one-size-fits-all answer to this question. For every person who enjoys productively working from home in a comfortable, quiet space there are multiple people who cannot be productive in a space free of distractions. It also can be difficult to maintain culture and collaboration when people are not physically together.

Another reason it may be difficult to return to offices as they exist today is that employees may be uncomfortable being in proximity with one another in context to social distancing. How can this be addressed? It is helpful to think in phases. Phase 1 will be returning to offices in the near term. Most likely, this phase includes alternating work days between groups of employees so distancing can be maintained. Working from home also will continue for some percentage of the population. Companies should think about being nimble and keeping capital expenditures to a minimum during this phase.

Phase 2 will encompass a longer-term strategy and will be company specific. Company leadership should take the time to understand how employees work most effectively. There may be a need to evaluate historical location decisions, overall space design and the need for distancing going forward. There may be a percentage of the workforce that can work effectively from home on a part- or full-time basis. It will be important to evaluate the need for physical presence to maintain culture and collaboration.

Over the past five to seven years, the open office plan gained momentum. What started as a cost-saving decision by young tech firms evolved into a trend that was emulated by more companies in different industries. Unfortunately, some realized after the fact that the open office is not right for every company and industry and, when not thoughtfully executed, the configuration can result in a loss of productivity and culture.

The same possibility exists again regarding remote working. For some industries, companies and divisions, this concept will work well; however, for others, it may not. Companies with leaders who anticipate the ramifications of making broad operational changes and make thoughtful decisions will thrive. These are challenging times and those that are strategic and flexible will be rewarded.

The silver lining is that the supply/demand dynamics of the office marketplace likely will become more balanced and shift toward tenant favor. Tenants that are proactive will have the opportunity to position themselves for success.

Featured in CREJ’s June 2020 Office Properties Quarterly