CREJ

Page 14 — Office Properties Quarterly — September 2020 www.crej.com Trends W hen COVID-19 upended working life for nearly every executive worldwide, people were asking one question: Will we ever go back to the office? At first, it seemed unclear. Industry legends were denouncing their real estate hold- ings. Warren Buffet said the follow- ing: “When change happens in the world, we adjust.” Adjust people did. Marcus & Mil- lichap estimates a 40% growth in remote work across the U.S. Cor- porate hubs like Manhattan saw a 50% reduction in corporate leasing volume in only a matter of months. Many companies found success with remote work, and the ability to con- duct business from home played a major part in preventing any further economic disaster. But after months of remote adapta- tion, the importance of the office in corporate life is clear. It’s true that in many cases, work can be conducted from home. But the office is a space for collaboration, talent recruitment, onboarding and inspiration. Four quarters without those four walls would be a big loss, and employ- ers understand better than ever the need to get creative. The answer now seems clear: A return to office is in the near future. But a follow-up question has arisen: Will the office ever be the same? As teams gear up to facilitate a staged and safe return, employers and HR professionals already have innovated on physical and digital office design. It seems safe to say that the 21st century office is forever changed. n The post-COV- ID-19 workspace: Physical adapta- tions. After such core-shaking dis- ruption, it would be eerie to return to an office that looked exactly the same as it was left. The post-COVID-19 office has many design-related requirements. Most striking is the reversal of the densi- fication trend. The amount of office space devoted to each employee has been shrinking consistently through the years, and it’s a trend the pan- demic has wholly rejected. Distanced layouts, separated cubicles and personal space – these are the new office demands. In navigating its return, Cushman &Wakefield created the Six Feet Office. The design features contact- less pathways, one-way hallways, distanced desks, disposable surface protectors and signage to direct the flow of the team. Other companies have invested in larger desks and more partitions between depart- ments. Rather than open layouts, it’s likely new builds will begin with closed floor plans and find creative strategies for teams to remain con- nected. n 21st century tech. Perhaps the main area of focus when it comes to workplace adaptation, and the most exciting, is smart technology. Although the claims can seem out- landish (see Facebook’s mixed-reality workspace), the technology already exists. The combination of building tech, smartphone apps and wearable sensors could transform the post- pandemic workplace, making it a much safer space. A walkthrough could work as fol- lows. Employees have an app on their phone that’s designed by their building. At the entrance, they’re able to trigger contactless entry, navigate through touchless turnstiles, and be told by the app which elevator to take to which room. The app knows the location of other team mem- bers, where there may be too much exposure and which surfaces most recently have been used. When the app directs the employee to confer- ence room B, it also sends the janito- rial team a notice that conference A is due for cleaning. The possibilities could be endless. The employee can use the same sys- tem to order a coffee from the café, to book a mat during 5 o’clock yoga on the terrace, even to wait in line for the bathroom. Building owners, with access to the data, could opti- mize their spaces. Employers, with some creativity, could use the app to make the workplace experience more convenient for their teams. n Enabling the hybrid solution. In reality, it seems most employers will be working out hybrid solutions, with The 21st century office will never be the same S ince March, conversations surrounding the future of coworking and flexible work- space have revolved around a single topic: COVID-19. From growing health concerns to reports of coworking leases being cancelled or downsized, it would be easy to assume that COVID-19’s strain on the office leasing sec- tor might spell the decline of the coworking industry. However, as Giovanni Palavicini, an Avison Young principal who focuses on flexible workspaces, points out, coworking is not a new phenomenon. “The idea of flexible workspace has been around since the mid-’90s,” Palavicini said. “From September 11th to the 2008 finan- cial crisis, this is not the first major disruption the industry has faced.” In fact, Palavicini suggests that the coworking industry often is bet- ter positioned to weather market volatility than traditional leasing. During periods of economic growth, the number of startup companies in need of flexible space increases. During periods of increased unem- ployment, professionals working in a consultant capacity seek private office space with coworking firms. This is not to say that COVID-19 has not affected the coworking industry. As Palavicini puts it, the pandemic and subsequent stay-at- home initiatives served as a large- scale case study on working from home. Technology has allowed the world to grow increasingly mobile, and the quarantine demonstrated that it is possible for business to be conducted outside of a traditional office setting. The coworking indus- try will not be immune to this realization, which likely will result in a percentage of individuals and/ or startups forgo- ing the expense of leasing flexible workspace in favor of simply working from home. However, working from home is not without its disadvantages. From barking dogs to inadequate inter- net capacity, the remote work set- up often is rife with distractions. According to a study sponsored by CBRE, there remains a substantive desire for a formal office work- space among corporate employees. What the pandemic has sparked is a greater emphasis on workplace flexibility. No longer content with long commutes and high-density offices, the workplace model is poised to shift to better serve employees’ work-life balance. The hub-and-spoke model – in which a company maintains a central headquarters supported by strategically located satel- lite offices – has gained renewed momentum in the COVID-19 era. The post-pandemic age is likely to see this leasing strategy employed with greater frequency even at the metro level, increasing the need for flexible office space in the suburban submarkets. It would be easy to look at the recent data regarding flexible office space and conclude the industry is buckling under the pressure of the pandemic. In August, JLL predicted that as much as one-fifth of the coworking space nationwide, rep- resenting approximately 25 million square feet, may close or change hands as a result of the pandemic. However, the reality is that the coworking industry was due for a correction. As the result of the bullish efforts of companies like WeWork and others, the coworking footprint has grown exponentially in recent years, in many cases out- stripping demand. In Denver, flexible office space accounts for nearly 2% of the mar- ket’s total office footprint, putting it in the top 10 nationally for flex- ible office inventory. Since 2016, WeWork alone has leased 606,000 sf in Denver, and in the last two years, Novel Coworking has purchased three buildings totaling 409,932 sf. With such aggressive expansion, there was bound to be a correction. The current change in the cowork- ing sector may have been expedited by the COVID-19 crisis, but the root cause was an overextension in the industry, which required an adjust- ment. As smaller coworking firms go out of business and larger ones tighten their portfolios, the cowork- ing sector will find balance and build on its gathering momentum. Beyond coworking’s immediate prospect of leasing space to cor- porations as part of the “satellite offices” model, changes in federal accounting standards also have made flexible short-term leases an appealing option for enterprise clients. According to new account- ing standards, all lease liability is required to be reported on a company’s balance sheet for any lease exceeding 12 months. Under these new standards – which went into effect in January 2019 – there is an added financial impetus for companies to pursue short-term lease options. It is a shift that may eventually come to affect the aver- age office lease term. However, as Palavicini points out, commercial real estate is slow to change. While landlords and agency leasing bro- kers likely will require more time to adjust their approach, the cowork- ing model provides an immediate solution. There has been a great deal of discussion during the COVID-19 era about the “new normal,” and what the commercial real estate land- scape will look like after the threat of the virus has subsided. However, there are no answers for how or when the pandemic will end. The “new normal,” far from being a uni- versal reality, is likely to be a series of successive solutions that evolve over time. Though it’s too early to identify what these solutions will be, it’s clear that flexibility will be chief among them. Whether it be additional office space to better accommodate employees’ work- life balance or short-term leases, which offer companies the freedom to pivot their business, coworking is poised to remain relevant in the post-pandemic world. s Market sees greater emphasis on flexible spaces Zain Jaffer Founder and CEO, Zain Ventures Cara Stamp Research analyst, Avison Young Distanced layouts, separated cubicles and personal space are the new office demands. Please see Jaffer, Page 25