Eliot Bencuya is co-founder of real estate investing firms Streitwise and Tryperion Partners.
For a decade now, mid-size and larger companies have been upgrading and designing office spaces to be more efficient, appealing and amenitized. The transition has been part of an overall corporate marketing strategy to attract and retain employee talent. Furthermore, despite the WeWork saga, coworking attracted a lot of smaller businesses for largely the same reasons — and the final chapter on WeWork has yet to be written.
In a competitive labor environment, the quality and location of office space represent far more than a place to be productive and create with colleagues. It represents a place to congregate, collaborate and make work less work-like. It creates serendipitous interactions that cannot be replaced by video chat.
Today, as the adoption of digital meetings accelerates, there appears to be growing questions about leasing office space at all when intercompany conversations and workflow can be managed entirely digitally. Work from home (WFH) has piqued the interest of many employers, journalists and venture capitalists who capture attention with eye-catching headlines declaring the death of the office.
It’s not entirely without merit. Sublease availability has increased quickly, especially in technology-heavy markets like San Francisco and Austin. But that has as much to do with this particular moment in time as it does with whether or not office use is over forever. Let’s be clear: Old, unrenovated, unamenitized office spaces are seriously at risk. Our focus has been and will continue to be on the higher end of the office property food chain.
Why WFH Doesn’t Work For All Firms And Their Workforce
There certainly are companies, mostly engineering and tech-centric, that have some employees fully remote with corresponding company cultures built to match from day one.
There are also companies that were forced overnight to shift to a mostly remote workforce finding that it may work better than expected, but may be suboptimal. Which is to say, there are circumstances and structures that can alleviate office lease requirements, but there are many companies for which the remote workforce is a temporary Band-Aid, where the solution only works for a subset of the employee base.
Socialization and collaboration in the office are far different than online, and it’s impossible to replicate in-person activities. In a remote work setup:
1. Teams and ideas are siloed. Creativity can be stifled. A study of 15 million employees finds that those with a best work buddy are seven times as likely to be engaged in their jobs, are better at engaging customers and provide higher quality work.
2. Advancement opportunities may be missed at home.
3. Knowledge transfer from seasoned employees to the rest of a team can be stifled.
4. There are lots of employees who want to go into the office. Parents of young children and recent college graduate employees in small city apartments are demographically significant and are not nearly as functional or desirous of a full-time, work-at-home system. Studies say 66% still prefer working in an office over WFH.
5. Many workers don’t want to exclusively work from home, preferring a hybrid environment.
Benefits Of The Class A Office Post-Covid
As mentioned, and as should be emphasized, there’s a huge difference between Class A office properties in strong locations and lower-quality buildings in less desirable submarkets. Demand pressure will exacerbate that bifurcation going forward.
Put plainly, many organizations will still have requirements for office space, and it will likely be less dense than before. To the extent the office now means more than just a place to sit and do work, they are likely going to focus on Class A properties in good locations. They will prioritize — even at premium pricing — office products offering the lifestyle for those workers who desire an easily-accessible central location surrounded by activities and amenities. Class A buildings bring greater flexibility for companies to shuffle workers and move workspaces to accommodate needs in a pandemic.
It is also likely that construction and development slow, allowing time for the market to strengthen as demand increases while supply remains stable.
What The Office Will Be Post-Covid
Nobody ultimately knows where the new equilibrium lands, but the idea that the new equilibrium is closer to 0% of demand than 100% of previous demand is fanciful. What is likely is that we find more flexible work environments, including hybrids of WFH and in-office workforces. The focus will be on newer, safer office buildings with a concentration on perks and amenities for younger workers escaping small apartments. Leases will be shorter and more flexible as direct owners compete directly with companies like WeWork and Regus, with lower landlord build-out costs.
We are in unknown territory, but significant changes to the office industry mean opportunity, not death. History shows that it is better to pay a premium for better buildings as the demand for quality office space not only survives but thrives.