Pandemic Can't Derail Many Changes Already Underway In The Office Sector
Landlords and property managers know many office buildings need drastic changes before now-homebound workers feel it’s safe to return. Decade-long trends that introduced open offices, bench seating arrangements and shrunken individual workspaces may reverse.
But even as stakeholders begin planning for the inevitable day when offices reopen, they should recognize that several other recent trends that also transformed the sector may have staying power. Sorting out which innovations should be ditched and which ones still meet tenants’ needs will require taking a few deep breaths and recognizing it’s premature to make irreversible decisions when responding to a little-understood virus.
Perhaps the most radical change for office since 2009 was the migration of companies from suburban campuses to sleek downtown properties. Many now speculate that fears of high-density, urban districts will reverse the trend as tenants seek out wide-open suburban spaces, according to an April 19 New York Times report. Other experts disagree, as economic conditions, at least in the near term, will limit options to move.
“It’s way too early, because we’re clearly in a recession, and we’ll be in a recession for a while, and generally during a recession people just don’t get up and move,” GlenStar Properties managing principal Michael Klein said Tuesday during Bisnow’s Chicago Virtual Town Hall.
Klein’s Chicago-based firm owns and operates office properties in the suburbs and Chicago’s central business district, including the 911K SF Continental Towers in Palatine, the 1M SF Schaumburg Corporate Center and the Chicago Board of Trade building in the Central Loop.
The lack of any major shifts in the short term does not mean the coronavirus crisis won’t eventually motivate some downtown companies to leave for the suburbs, Klein added. But if that happens, such moves will most likely happen over a number of years, especially if fears of the virus linger even after the worst is over and users start to feel the suburban region’s lower density will make it easier to continue practicing some forms of social distancing.
“Suburban Chicago will be a little bit easier to figure out than if you’re in a 50-story building downtown,” Klein said.
The suburbs-to-downtown migration may have already started to ebb anyway, as the young workers who drove the trend start families and no longer want to live in small apartments in the urban core, he added. Once the current recession ends, that new movement could begin again, and talent-hungry firms may follow.
“We saw it 18 months ago from the residential side that there were some millennials that had gotten married a little later [than previous generations], had kids and started to move to the suburbs,” Klein said.
Even though workers will find more outdoor space at GlenStar properties like Continental Towers and Bannockburn Lakes, a north suburban complex on 45 acres with walking trails and green space, such demographic change takes time.
“They’re going to be more popular, but it’s not going to be an extreme where everybody runs to the burbs and says, ‘I’ve got to be on 45 acres,’” Klein said.
Changes to office design are also on the way, but Stephen Wright, principal of Chicago-based architectural firm Wright Heerema Architects, said that although more companies will start installing barriers between workspaces, breaking up huddle rooms into individual spaces, and utilizing technology to ensure doors and elevator buttons can be used without physical touches, other aspects of office life will either look similar or change modestly.
One fear among landlords is that as many tenants have found they can efficiently run their companies with at-home workforces, it will reduce demand for space, Wright said. But the need to put more space between workers should significantly boost the amount of square feet allotted to each person.
“That would tend to balance out the grave projections that people were going to cut their space 50%,” Wright said.
He also sees signs that when the pandemic subsides, many firms will decide to bring most workers back to the office, even if it costs more. Blackstone President Jon Gray said in an April 22 call with analysts that in-person collaboration is key to the company’s success, Wright pointed out.
“I still believe in the fullness of time. I mean, working at home, we’ve made it work, but we think it’s better [to be in the office],” Gray said. “We’re much more efficient when we’re together.”
Klein said GlenStar is in the midst of constant conversations with its tenants, property managers, investors and the brokerage community and usually hears something similar.
“What the middle, reasonable ground will be is that square footage per person won’t go up dramatically but will go up to create spacing, and that will be offset by having a little bit of an increase in the number of people working from home,” Klein said.
Wright’s conversation with the head of a large corporate user, among many others, led him to a similar conclusion.
“She didn’t want to make permanent plans for her space and how she was going to occupy it for a year,” he said. “She wants to see how everything opens back up and what people’s real opinions were about working from home.”
“It’s really, really early,” Klein added. “We’re sort of in inning one, and maybe there’s just one out. Look out to maybe the second inning, not the ninth, and take it one day at a time.”