What could be considered business as usual in the US commercial real estate market now with the catastrophic worldwide COVID-19 pandemic easing up?
As the Chairman and CEO of a commercial real estate development and brokerage company with active projects throughout Florida and Atlanta, I can tell you that while many factors reduced office demand in 2020, several are now increasing it resulting in a ‘net effect’ that has us at the Allen Morris Company heading toward business as usual.
With the pandemic came business closures and bankruptcies. Healthy companies cut staff and found themselves with more office space than needed. Other businesses made the conscious decision to close their offices and reimburse employees to permanently work from home or in co-working environments such as Regus, Spaces, and WeWork. Still other companies are reconfiguring their square footage for a hybrid schedule yielding to less private office space and more intimate collaboration spaces. Dropbox Founder and CEO Drew Houston says for them “this is a permanent shift. Everyone will lose their desk at the office and work from home. They will only come into the office for collaboration meetings called ‘Dropbox Studios’.” (“The Death of the Office Desk is Upon Us”, Wall Street Journal, 13 Jan. 2021). Other industries, such as insurance agencies, are sending their agents to work from home to reduce office expenses.
Altogether, these factors reduced the demand for office space by 15-20% nationally in the past year.
On the other hand, major factors are now stimulating a renewed demand for office space. With the vaccination rate increasing and us becoming accustomed to wearing masks, we are collectively feeling more at ease around others which has resulted in many employees stating an eagerness to return to the office. Likewise, their employers are feeling equally anxious to regain levels of productivity not reached since the pandemic blew the corporate work-centric paradigm to smithereens.
Several leading CEOs have expressed a similar sentiment on the need of returning to the office space:
- David Solomon (Goldman Sachs) dislikes remote working and joins other executives in bucking the trend of long-term work from home after the pandemic ends.
- Jes Staley (Barclays) anticipates its staff of 80,000 to return to the office this year.
- Chuck Robbins (Cisco) is looking forward to employees coming back into the office.
- Sundar Pichai (Google) who was “at the forefront of the one work-from-home movement” is now one of the first to ask its workforce to make its way back. In a letter to some 200,000 employees he states, “We firmly believe that in-person, being together, having a sense of community is super important when you have to solve hard problems and create something new.”
- Jamie Dimon (JPMorgan Chase) has said that work from home has caused productivity to fall, particularly on Mondays and Fridays. He is requiring his workforce to return to the offices by September 2021.
- Satya Nadella (Microsoft) has warned that remote work has caused burnout.
- Jeff Bezos (Amazon) expressed that remote work hurts innovation. It was followed by news that Amazon is bringing Seattle HQ employees back in the Fall similarly to JP Morgan Chase and Wells Fargo.
(“Goldman Sachs CEO David Solomon Calls For Workers To Return To The Office”, Forbes Magazine, 25 Feb. 2021)
(“Goldman Sachs, Google, Amazon Prepare for Return to Office”, Morning Brew, 01 Apr. 2021, Morning Brew, 1 April 2021)
As reported in The Economist, “in the Spring of 2020 the country’s unemployment rate was nearly 15%. Now it is already just 6% after a year containing five of the ten best months for hiring in history” (“Riding high in a worker’s world”, The Economist, 10 Apr. 2021). In this environment, it is especially important for new employees to be in the office to learn the corporate culture and receive the proper job training they cannot get while isolated at home. I myself feel technically competent working from my home office on occasion yet experience untimely instances of bad internet connection or computer crashes during important virtual team meetings. Had I been at the office with onsite IT assistance, I would have been promptly reconnected. It served as a reminder that remote work is not the panacea of the pandemic.
An extra boom in office demand has hit the major cities in the U.S. Sunbelt. We are experiencing it right now in Miami, Orlando, and Atlanta as companies flee the less business friendly environments in New York and California. In Miami, 1.2M SF of new potential lease tenants are touring the market for relocations from the Northeast. Goldman Sachs is reportedly making a big move to West Palm Beach, and we at the Allen Morris Company are actively negotiating with multiple companies moving or expanding their headquarters into Miami and Atlanta.
The vacancies and business losses in New York and California are a major gain for the Sunbelt and offset pandemic losses. The net effect in the Sunbelt, as the gains look to offset the losses, should take office occupancy back to normal by the end of 2021.
My simple office market economic formula works like this:
Office Space Demand
Permanent or Partial Work from Home
Office Space Demand
Post-COVID-19 Return to Office
Relocations to Sunbelt states from California, NYC, and the Northeast
= NET EFFECT ZERO
In other words, Business as Usual.