Is office space a thing of the past?
Without elaborating too much on the worldwide impact of Covid, I think everyone will agree that the pandemic has shook the world as we knew it completely. One of the property asset classes that was hit the hardest, is office space. Office space encompasses a broad definition of tenants that include auditing firms, architects, engineers, insurance companies, banking companies and real estate agencies, to name a few. Of course, in most commercial properties we also find a portion of the building that is exclusively used as offices.
Since the pandemic started vacant office space in South Africa has increased to 15-20%. Landlords are struggling with defaults from tenants and employers are uncertain of what the future holds for their business in South Africa. On a daily basis we read of companies whose employees have not been back in office since March 2019. Employees believe they are more productive working from home than when they were at the office. The sentiment in first world countries that the vaccine has triumphed over the virus, is also disappearing as countries struggle with new increased infection rates.
The question is if office space, as an asset class is a thing of the past? In my humble opinion, the answer is a definite no. To ask employees if they are more productive at home or at the office, is like asking a hairdresser if you need a haircut. The reasons why the need for office space is certainly not going anywhere are:
Reduction in office space
Worldwide office spaces are being transformed in a heartbeat to residential units and other asset classes, such as student housing.
Entry cost too high
Apart from removing office space from the market, few new office spaces are being added due to increasing building cost.
Return to work
In first world countries we see that companies are increasingly bringing employees back to the office in phases and sometime needing more space due to social distancing.
Personal training needs
Professional industries such as auditors or lawyers require ample amount of time to train their clerks. Although there are many online training platforms such as Microsoft Teams, Zoom, Skype etc. that can do the job and is efficient, it is just not the same as in person training.
The use of office space as we knew it pre-Covid, is undeniably a thing of the past and as a result, many companies are taking a hybrid approach or implementing hot desk systems. Nonetheless, my opinion is that the BIG return to work from the office might be slow-moving, but it’s definitely happening. It will be interesting to see what vacant office space percentages will be in a year from now.