THE DESIRABILITY OF OFFICE SPACE IN A POST-COVID-19 WORLD OFFICE from page 1 WREB sat down with five of the West’s office space experts to deter -mine what the workforce may look like outside of our homes once this pandemic is firmly behind us. WREB: Will the office sector likely experience a one-two punch due to shutdowns/stay-at-home orders and layoffs/furloughs? Brian Hatcher, regional president of brokerage for the Northwest, Kidder Mathews in Seattle: The office sector will sustain some blows in the short-term due to COVID-19 layoffs and stay-at-home orders. To what extent, nobody knows. Many com -panies will likely be hesitant to acquire Hatcher expansion space un -til they know how going back to work will unfold. Long-term, I believe companies will have employees go back to work. Em -ployees like a strong work culture and the camaraderie that comes with be -ing at the office. In terms of how close employees work together, the office layout may change, and that will be the new normal. However, being at the office is still how companies will prefer to operate their business. Michael Arnold, executive vice pres-ident and director of the Tenant Con-sulting Group, NAI Capital in Los Angeles: It is a one-two punch for the office market. We have seen the office sector experi -ence a significant slowdown in new occupancy because of the shutdown. As office tenants re-open for business Arnold and reassess their space needs due to social distancing, the expectation is that space requirements and occupan -cy costs will be impacted. Tenants will be doing several things to transition through the fallout. This includes deciding to put a “pin” in the decision-making process, delay -ing their occupancy for later this year or restructuring an existing lease to make it more palatable for the next 24 months at a minimum. A restructure becomes a win-win scenario for the tenant to reduce their occupancy cost today, retain employees and finan -cially navigate through this tumultu -ous time while providing the landlord with a solid, rent-paying tenant for the duration of the newly restructured lease. Most landlords, meanwhile, are The former Teledyne facility in the Los Angeles submarket of Del Rey will soon become Del Rey Creative Office Campus, a 162,000-square-foot project scheduled to debut soon. being realistic and are not holding on to pre-COVID-19 rent expectations. WREB: Will we see a permanent shift to telecommuting and working from home, resulting in a need for less of -fice space, even after business returns to normal? Chuck Schreiber, CEO, KBS in New-port Beach, Calif.: While businesses may have found some success in these conditions, it is not necessarily the best permanent solution. We antici -pate that we may see about 10 percent of companies remain Schreiber remote. We will also likely see an influx of demand for expan -sions or more office space among companies in order to adequately pro -vide enough space for employees to social distance and feel comfortable. For example, in the past, a company may have occupied 85 to 100 square feet per employee. We may see this number double where companies are now opting for 170 to 200 square feet per employee. The challenge for many office own -ers over the next six months is going to be meeting this demand for space. Most of our office buildings are nearly fully leased, so working with tenants on these needs for increased space will be a focus for many office land -lords and owners. Steve Core, president, RiverRock Real Estate Group in Newport Beach: Absolutely. We’ve surveyed our em -ployees and the majority said they would like the opportunity to work from home a portion of the week, with a fair amount stating they would like to permanently work remotely and come into the office only as necessary. I think we’ll see more shared space where teams and companies oper -ate with alternating groups, or A and B teams. There will still be many companies that need or require their employees to be in the office ev -ery day, but like us, there are those find -Core ing out they can re -duce their footprint by 20 percent or more while giving their employees more flexibility. We see that as a savings to the bottom line and advantage to remain competitive as we recruit new employees. WREB: How might the office environ -ment be influenced by the economic and health concerns raised during this pandemic? Dana Berggren, owner, Berggren Commercial Real Estate and The Coop Coworking Space in Las Vegas: Certain industries will be impacted more, especially in the short-term, where there are higher occupancy requirements, where workers and cus -tomers are packed more densely into the office. Call cen -Berggren ters may have to space out their workstations and ro -tate employees with staggered shifts. Training centers may have to increase distance between seats. Medical offices will have to space out their waiting rooms by either moving patients directly to the exam rooms or having patients wait outside in their cars. Once inside the exam rooms, increased safety measures may need to be taken to ensure patient and physician safety. All of these measures could potentially impact production and revenue for businesses. While the government mandate to maintain a certain distance may only be temporary, many offices may con -tinue to do so in response to the safety concerns of their employees and cli -ents. Communication will be key as we gauge employee sentiment on the status of things. As of now, about 50 percent of workers are not ready to re -turn to the office. I believe Class A office in larger metropolitan areas will suffer most in the short-term due to many factors. These are densely populated areas with more workers relying on pub -lic transportation. Will they feel safe on trains and busses? Will they feel safe in common corridors, elevators and restrooms? Employees are in the driver’s seat and will dictate to their managers how and when they will re -turn to the office. We’re already seeing reports that Google, Uber, Microsoft and Facebook are allowing employees to continue working from home. If the work-from-home trend persists, you may even see a flight to secondary and tertiary markets where the cost of living is much lower, as is the cost of occupancy for office space. WREB: Are there certain industries, types of offices or geographic regions out West that will fare better during this downtime? Schreiber: That is difficult to pin -point, which is why we structure our portfolios and office buildings with a diversification strategy. No single property contributes more than 13 percent of rental income across each of our portfolios. We ensure that the tenant mix of each office building in -corporates a variety of tenants across multiple industries. With this strat -egy, the probability of an asset being impacted negatively by a single event or shifts in a single tenant or within a single industry is much lower. An example of this strategy is the way we structure co-working space in our office buildings. We value our co-working partners and believe they will weather this storm, but they only comprise about 3 percent to 5 percent 20 • June 2020 • Western Real Estate Business www.REBusinessOnline.com
Western Real Estate Business June 2020: Page 20
