COVID-19 has impacted the world unlike any event in recent history. While most industries have been affected, commercial real estate may suffer the most. Recently, I read an article from ZDNet that made me pause. The article cited a Gartner survey that concluded 74% of CFOs believe that a number of employees will be permanently moved from working on-site to working remotely in order to decrease commercial real estate costs. But, is this permanent shift likely or even realistic?
In the business world, with the implementation of social distancing and shelter-in-place orders, many “essential” companies decided to close their offices and transition their employees to working remotely. As a result, companies are realizing now what they’ve suspected for some time – most day-to-day tasks can be accomplished from home. With a host of technology and software at their disposal, businesses are now positioned, better than ever, to move employees off-site.
What are the repercussions of this? During previous economic downswings, commercial real estate has remained fairly consistent due, in part, to longer lease terms and having corporate entities as tenants. However, will recent events disrupt the market to the point where we see a decrease in demand for office space? Many real estate professionals see that as a possibility. After all, prime office space is costly, particularly in major markets, and trimming down on the amount of space needed can mean big savings for companies.
In the past, companies focused on increasing revenues to grow their bottom lines. However, at a time when competition for market share is fierce that focus has now shifted to cutting costs. This shift has become even clearer during this pandemic as many entities have tried to off-set losses by decreasing payroll costs through layoffs and salary cuts. Although it may be unrealistic to think that companies will, overnight, move a majority of their workforces to working remotely to save money, the current crisis may force companies to take a serious look at their overhead costs and determine whether they can reduce their office footprints while maintaining the same levels of productivity and accessibility. For some businesses, this may mean considering the consolidation of offices with many employees working remotely. Others may evaluate the possibility of moving certain business functions off-site, such as accounting and billing. For smaller businesses, working from home may not be possible, whether due to lack of technology infrastructure, operating procedures, or otherwise.
The truth is that we do not truly know how adverse the effects of this pandemic will be, nor do we know what the commercial market will look like moving forward. It is hard to say that office space will become obsolete as the need for such space is dependent upon many factors that vary not only by industry but also from business to business. Regardless, there is a shift in the mindset of companies that cannot be denied. The only looming questions are how big of an impact will it have on the demand for commercial real estate and how long will it take to come to fruition? At this point, only time will tell.