Despite The Media Rhetoric, Not Likely!
Toss a rock and you’ll likely hit some doom and gloom article espousing how the impact of the COVID-19 pandemic on commercial office space is setting up to be a significant game changer for investors. Yet, a growing number of analysts are beginning to walk-back their rhetoric as some of their earlier prognostications are falling the way of the dodo. “[The] office market is going to change big time, and nobody really knows what it is going to look like,” said Mac Morse, an advisor with Citadel Partners, a commercial real estate advisory firm. Companies that formerly viewed working from home as the antithesis to productivity are now questioning whether it is worth spending thousands of dollars a month on rent, Morse said. “This could 100% lead to fewer office leases in the future,” he said.
Back in April, Morse was not alone in his dire projections, especially as the lock-down literally emptied office buildings throughout the country. However, these highly attenuated conclusions revolve around two major erroneous assumptions; (1) The belief that a very significant percentage of employers will actually implement remote working as a viable long-term shift, and (2) Some version of social distancing will be necessary and/or desired far beyond the threat of COVID-19.
Is the work-from-home model really a viable alternative?
During the 2020 Virtual BOMA International Conference & Expo session titled “Post-Pandemic Outlook for Commercial Real Estate” panelists unanimously called the remote working trend a big success and further suggested that employees won’t return to the office solely for work, but instead for collaboration and strengthening socialization and cultural connections. In fact, it’s nearly impossible to find any article anywhere that’s not literally gushing over this new trend. So, is this really the new normal? Don’t bet on it. While the remote work option has indeed been a fantastic short-term solution that’s enabled companies to keep up with productivity, it’s no substitution for the time proven success of the physical office environment. First, let’s address the elephant in the room—that being the litany of health care professionals who continue to warn of how social isolationism in America is not only expanding, but its effects are causing psychological and emotional harm. “What we know at this point is that we have evidence that replacing your real-world relationships with social media use is detrimental to your well-being,” says Holly Shakya, an assistant professor in the division of global public health at the University of California, San Diego.
Are we actually going to embrace remote working?
Professional blogger and remote worker, Sean Blanda, says remote working is a poison pill that kills careers. Blanda claims remote work makes you vulnerable to outsourcing, reduces your job to a metric, creates frustrating bureaucracies and stifles career growth. The lack of scrutiny our remote future faces, he says, is going to result in frustrated workers and ineffective companies. Chief Executive Ronald J. Kruszewski with Stifel Financial Corp. says it’s nearly impossible to develop young talent remotely. “I am concerned that we would somehow believe that we can basically take kids from college, put them in front of Zoom, and think that three years from now, they’ll be every bit as productive as they would have had they had the personal interaction,” said Kruszewski. This particular issue says nothing about the long laundry list of day to day scenarios in which remote working is either patently impossible or pathetically impractical.
Also, let’s not lose site of the fact that business can’t simply downsize their office-based work force at a whim. The majority of U.S. office leases are eight years or longer, according to analysists at Moody’s Investors Service. In an early July report, analysists noted that they didn’t see an exodus from offices, despite popular claims that offices were now dead. If employers are going to intentionally keep offices half empty to make way for this new trend, it better be a more effective and profitable way of doing business. Is it? Or is this perhaps just the newest flavor of the week? Remember just a few years ago when everyone touted the brilliance of the Open Office model… hashtag/fail.
Is social distancing here to stay?
I sure hope not. It seems somewhat unamerican and perversely phobic to continue to be afraid of our fellow citizens after the pandemic passes. However, there are those who say—and frequently I might add—that this is the new normal. Chances are that when you returned to work a short time ago you came face to face with Plexiglas, mask requirements, temperature taking and little round decals on the floor reminding you to keep 6 feet away from everyone. How much of this is going to be permanent? Well, if the answer is predicate upon the written word, most likely, forever. The popular consensus, among writers at least, is that we’re never going back to normal. A new study from Harvard’s T.H. Chan School of Public Health reports that social distancing could last until 2022, requiring measures to be in place between 25% and 75% of that time, depending on the seasons, “unless critical care capacity is increased substantially or a treatment or vaccine becomes available. Again, don’t bet on it. Vaccine or not, others (like myself) believe that Americans collectively will put up with this fear-based control for only so long. “[T]here is a dawning realization that the psychological, social, and political problem of how to sustain social distancing, without draconian, authoritarian measures.” Said, Scott Atran, Ph.D. (Psychology Today, March, 2020). Clearly, at some point, we will go back to normal. Why? There’s nothing normal about social distancing.
How remote working and social distancing may impact commercial real estate?
The smart money anticipates and expects that there will be some percentage of businesses that find it beneficial to integrate some form of remote working into their office environment. Yes, to some extent, in some markets, we’re bound to see a temporary shift in space demand and configuration. Yes, some Class-A buildings may even tap-out, in the short-term, and make way for some opportunity acquisitions. Yes, some employees may like it. Yes, some start-ups may need it. But, the notion that remote working and the cost requirements of social distancing are going to revolutionize the landscape of the office experience forevermore, at this point in time, fails not only the cost/benefit analysis, but it also fails to take into consideration a few basic facts; this is the place where we choose to spend the bulk of our day, this is the place where we develop close working relationships and even life-long friendships, this is the place that often times forms our occupational identity, and this is the place where—if nowhere else—we feel included and valued. The office is not just some functional place where we go to make a buck. When that’s all it is, we usually move on.