COVID-19 has seen a massive shift in short term workforce dynamics. Given the obvious destabilisation that this situation is creating, there has been a lot of conjecture on the likely impacts to tenants and the property market once restrictions are lifted.
The reality is, long before enforced isolation measures were enacted, demand for commercial property had already been undergoing a period of major change led by developments in workplace organisation and worker behaviour. In part, this has been driven by cloud computing, improved data networks and remote access to required work data.
Internally, we have been debating the impact of post COVID-19 impacts on property requirements since the issue started to unfold. More recently, we took a survey of our client base to harness their thinking. We received 110 response from a diverse array of respondents, many of them business owners.
The results were surprising:
81% are working from home either every day or most days. Interestingly, prior to this crisis 27% already had a work from home policy or process in place
74% of respondents are either very satisfied or somewhat satisfied with their working from home arrangement
78% of respondents were either satisfied or very satisfied that their business is set up to allow indefinite remote working
29% of respondents were either extremely interested or very interested in implementing a work from home arrangement for their workplace and/or employees. 33% were either not so interested or not at all interested and 38% were somewhat interested
When asked what frequency one will work from home once the current situation is over, 30% said they will go to the office, 27% will spent more days at home at 32% will do a bit of both.
Despite being satisfied with home working arrangements, that did not extend to business productivity with the vast bulk of respondents saying they are LESS productive.
53% of respondents saying their business was either less productive or not at all productive when compared to normal. Only 12% of respondents felt they were more productive which is at odds with much of the marketplace commentary.
When asked the survey question “What are the 2 biggest challenges are working from home”? The major issues outlined were:
•Co-worker communication – 18%
•Mentoring of staff – 14%
•Social isolation – 12%
•Client engagement – 14%
Almost 50% of responses were directly related to office occupancy.
50% felt it was either extremely important or very important to have a physical presence for their business. Only 29% felt it was not so important, or not at all important.
Most importantly, 57% of respondents said they will make no changes to their existing floorspace and an additional 17% (74% total) said they would keep their existing space but allow people to work from home. Only 16% said they planned to reduce space.
When asked ‘what changes do you see long term in your business arising from the current situation’. the overwhelming feedback is that technology is going to reduce the need for a lot of face to face meetings.
These results aren’t surprising – the current pandemic situation has in many ways just accelerated trends already well in play. Of the 16% of respondents who are looking to reduce floorspace once things return to normal, we believe these entities were going to do so in any event, especially given 27% already had working from home arrangements in place.
There is no doubt that when working from home, tasks which require focus or deep thinking can be tackled, often with better results. There is also the benefit of decreased commuting times and for many a better work/life balance, which can increase employee efficiency and satisfaction.
However, productivity is not just a measure of how quickly tasks can be completed, but a measure of what is being achieved. Or in other words, even if we are more efficient, are we more effective? Solely considering time efficiency gains also fails to recognise the influence people and teams have on each other, the critical impact of collaboration and the ability to mentor and develop a workforce.
People’s satisfaction in work is largely driven by the personal connections they build and maintain, and it is near impossible to foster such connections remotely. Remember that humans are Tribal and benefit from collaborating together in teams – this is ingrained in our DNA. A workplace’s culture plays an enormous role in enterprise success and culture is very difficult to maintain with distance work, let alone create.
Whilst working from home can have clear benefits for certain tasks, the overwhelming feedback appears that businesses are less productive working from home and for that reason they were not seeking to reduce their tenancy footprint.
There is no doubt this pandemic is going to impact property. The question is whether it is short term or more structural in nature. Longer term, whilst we think there may be some reduction in floorspace requirements, we think that will be countered by changes in market dynamics.
Density has gone as far as it can go. Floorspace ratios have come down from 1:20m2 to 1:8m2 and this has occurred at a time when office markets almost doubled in size – a fourfold impact! To put this in perspective, over the last 20 years floor space ratio compression has halved the amount of floorspace needed for the same number of employees. Yet, despite this dynamic, the office tenancy market has not collapsed, even at a time when most markets have doubled in size.
One aspect often not considered is that high workspace ratios result in higher build costs – vertical transport needs to be enhanced HVAC demands are increased, and additional points of egress / access and amenities are often required.
COVID-19 may be the catalyst to unwind this reduction in floorspace ratios. Last week, the National Chief Health Officer said that “social distancing will be permanent”. If this is the case, how is that reflected in workspace ratios?
In the Australian Financial Review on 7 May, James Calder, a leading designer of activity based working fit outs said, “it is the end of activity based working as we know it”. He went further to say, “all workspace, to be honest, is going to be impacted by your ability to implement effective social distancing to get people back to work and the activity based working target of 8sq m per person was likely to widen to 15sq m”.
If this was to occur, on these metrics half of a workforce could work from home and the current office requirements would remain. It is possible that office space requirements for certain companies may actually now increase. To this end, we have heard that Governments are now asking for floorspace ratios of 1:12 to 1:14 to effect more permanent social distancing. This could mean a structural shift in office dynamics at the same time we expect to see things like booths introduced into offices for video conferencing.
A more immediate concern is how do you actually get employees into a building when social distancing is still in place? In multi-level buildings, only 2 – 4 people will be allowed in a lift at any one time and some businesses have modelled that it would take 6.5 hours to get their employees into an office.
Where we really think such a change will be hard felt is in travel, hotels, cafés, restaurants and the like all of which rely on strong business travel and face to face client engagement. IT based businesses also, including network and storage providers are also likely to benefit from such a dynamic.
It won’t be just office accommodation that sees shifts in use and utilisation. Online retail has been supercharged and industrial will be the net winner to retail’s massive net loss. Distribution centres will increase and it would not surprise us to see “shandy’s” where there is a small retail showroom attached to an online distribution warehouse.
One also shouldn’t underestimate the nationalism that has come out of this pandemic and the need to protect supply chains. You are going to see certain areas of manufacturing expand locally – an industry that has been declining for years. No one saw that coming….