Will COVID-19 Transform the Traditional Office Real Estate Sector?
COVID-19 has quickly transformed the global workplace, unlike anything we've seen before.
With many countries under quarantine and office buildings closed around the world, companies have been forced to adapt. Some companies have found the obvious solution in making their workforce remote.
This likely brings with it the realization a traditional office space is not an absolute necessity and could even be a competitive disadvantage.
Whether this large scale migration to remote work is temporary or permanent, remains to be seen. In this article we discuss the potential side effects of this cultural transformation.
Less Demand for Traditional Office Spaces
Going forward there will likely be less demand for traditional office space, especially in densely populated areas.
Cities came into being through the idea that businesses being concentrated together would make commerce more efficient.
If this efficiency gets supplanted by technology, most humans will choose to live in less densely populated areas, where there is less crime, traffic and a better quality of life.
With a likely drop in demand for traditional office space, expect prices to fall going forward.
Companies are Financially Strained
Due to COVID-19, companies are likely to become financially strained and are searching for cost cutting solutions. Traditional office spaces are typically a large expenditure.
Once companies get a taste of remote work, they may come to realize traditional offices are not an absolute necessity, and also provide a large cost savings.
This could especially be the case if a company is financially strained and looking for cost cutting alternatives.
Rather than slashing the workforce, a company could slash expensive office space an move to a remote model in order to stay profitable. With traditional office space, comes high over head costs.
Rather than pay the high overhead associated with running a large office, many companies provide stipends to employees for co-working or office space.
These stipends are a fraction of the costs of operating a traditional office, resulting in a huge savings for the company. Further lowering the cost of traditional office work is low cost and easy to use technology tools.
Remote Workers are Better than Traditional Office Workers
Companies that embrace remote work have a lot to gain. They will have access to a larger talent pool, unrestrained by geography. Why hire from a 20 mile radius when you can hire from any country in the world?
The modern world is less restrained by geography and physical bounds than the world of office work that existed even 30 years ago. Whereas before a candidate had to live within commuting distance of a business, a large portion of office work can now be done online.
Companies' may also find more affordable talent when the cost of living is not tied to the cost of labour.
People like working home
Many people see remote work as a perk and a way of life that provides balance. The freedom to work remotely, means different things to different people and opens up endless lifestyle possibilities.
Want to live surrounded by nature away from the hustle and bustle of the big city? Or perhaps travel the world and live in a different city each month? Remote working empowers people to live a life of their choosing as opposed to being imprisoned in a one dimensional cubicle environment.
For jobseekers the difference between two companies may just come down to this as they perceive the flexibility to work from anywhere as a perk.
Co-working space and other decentralized types of businesses will increase in popularity
Both co-working office space and traditional office space have been negatively impacted by COVID-19. After the pandemic dust settles, co-working spaces that survive or startup, are likely to thrive and will have an advantage over traditional office spaces.
With all the polarizing headlines about the failure of WeWork's IPO, you might assume this would be the death knell of the decentralized office space dream. However, worldwide culture as a whole is leaning more and more towards these decentralized lifestyles. The concept in general is excellent, albeit maybe slightly ahead of it's time.
WeWork's possible demise might be a bad example to draw from as they tried to capture too much of the co-working space market share too quickly. Post COVID-19 time might see the rise of WeWork like companies with more mature and sound leadership, or even a more evolved or different business models. Just because people like remote working, doesn't mean they don't also like having a community base to work from every now and then.
In Conclusion
Some change comes about because we want it, and some comes about because we are simply forced to adapt. How we collectively deal with the COVID-19 pandemic has opened our eyes even wider to the freedom and balance that remote working empowers.
The office space sector is undergoing a major transformation and savvy investors who realize this stand to profit greatly going forward. How this plays out in the real estate markets is unknown, however there is a cultural transformation happening right now that could have ripple affects for years to come.
These emerging changes will provide many opportunities and failures. So it's important for a smart investor to stay on top of them.
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