Covid-19 lockdown did not change the direction of the rising trend of long-term work from home (WFH). It simply accelerated it, and is likely to have sustained the long-term decline in the size of the office market relative to South Africa’s entire property market, according to property insight from FNB Commercial Property Finance.
“But it could significantly change some office design trends. While ‘collaborative space’ is a buzzword, I believe that ‘private space’ in office buildings is what is sorely lacking,” said John Loos, property sector strategist at FNB Commercial Property Finance.
The office property sector has been a regular underperformer in the commercial property sector, he said.
Loos said the shift to open offices, away from the old-fashioned closed offices that many workers had in previous decades, allowed for space savings because employers could greatly increase the density of employees’ workspaces.
“I believe that cost savings were probably more of a consideration in the move to open plan than employee productivity considerations.”
In addition, technological advances in information and communication reduced the amount of space required for document storage, while also increasing the mobility of employees. This led to an increase in the proportion of office staff who could work remotely full-time or part-time, FNB said.
Old habits and “comfort zones” were arguably the only thing preventing many more people from fully embracing the technologies available for remote work and communication, to improve their daily productivity by, in many cases, wasting commuting time and to cut back financially. costs, said Loos.
He said that Covid-19 lockdowns did not introduce a new trend here. They are simply accelerating a long-term upward trend, putting more pressure on the already strained office sector.
The lockdowns forced the late adopters to try remote work, and many found out how much virtual business interactions could improve productivity by eliminating wasteful commuting, not only the daily commute to and from the office, but just as importantly those frequent time-consuming trips for many of us to meetings somewhere across town.
In addition, for those of us who wanted to use longer distance interaction before Covid-19, the lockdown period made it an acceptable practice in many companies, Loos said.
“My expectation was therefore that, after the easing and finally the end, of lockdowns, many employees would resume commuting to the office, but that the level of office attendance would not return to the level of 2019 pre-Covid 19 days.
“Then, from the post-lockdown new ‘normal’ level, the gradual long-term trend towards greater levels of remote work would resume, assuming that the enabling technologies will continue their long-term improvements.
“This seems to be what’s happening. The offices are fully open, but the office attendance rates don’t seem to be reaching the levels they were at before Covid-19. And I would guess that the current levels of office attendance are more or less where commuter levels will stabilize.”
Office market corrects in 3 broad ways
The correction of office markets, in response to all this pressure on office demand, would then take place in several ways.
- Rent expiration
Firstly, rents would decrease. This has taken place to a significant degree. Rode rental data, estimating the average National A-Grade De-centralized office rental / square meter, has decreased by -7.6% in real terms on the level of 1st quarter 2020, and a very significant -16.4% in “real” terms when adjusted for GDP inflation.
- Decline in the relative size of the office market
The second part of the correction would be in a decrease in the pace of supply of new office space coming on the market along with the reduction of existing stock, Loos said.
“This also appears to be happening. A proportion of older existing office space is being converted into residential property, while StatsSA building statistics point to very low levels of office space planning and of late.
For the 12 months to May 2022, the square meter of office space plans passed was down 69.6% on the 12 months to May 2019.
The office sector is likely to continue its long-term trend towards making up a smaller part of South Africa’s total property stock, Loos said.
- Building design is set to change as landlords compete with the attractions of home
The third way the office market is likely to adapt is in the design of buildings, and here things get more complex, Loos said. The market must compete with the house in the case of those jobs that can be done from both places.
A key selling point for employees, regarding the benefits of the office, is collaboration, Loos said. “Employees need to see each other in person at least part of the time, so the story goes, and to be sure, collaboration at least part of the time is important in many jobs.”
Collaboration has thus become a buzzword, and with it the term ‘collaboration space’, he said.
“But perhaps an overlooked part of the whole equation is the work part. Collaboration and interaction with co-workers is sometimes necessary, but much of the time for many employees is about focusing on their work individually, preferably without distractions,” said Loose.
“Distraction and disturbance for some employees who work at home can be a problem. But what about the open office? Noise and disturbance are often abundant there too.
“For many years, collaboration space has been an overabundance in many office buildings, whether it’s meeting rooms, coffee shops or break areas. The design may need to improve, but I’ve rarely seen a shortage of collaboration space.
Loos pointed to a lack of private space, where people can work without distraction – a necessity in many jobs.
“There was a reason for old office buildings many years ago with offices where employees can go in and close the door.
“That need for private space has suddenly skyrocketed due to the ‘zoomification’ of many of our daily business interactions. Even for those who are in their offices daily, many will interact with others remotely to save on wasted travel time and money,” he said.
Open offices where colleagues nearby were on the phone or talking to each other were disturbing enough for the neighborhood. Now the often confidential video conferencing is being added to the mix, he added.
Enter the office “phone booth,” the small soundproof cabin for quiet work. “The few that exist in the open office buildings seem very popular, and it seems that many more of them are needed now,” said Loos.
“So maybe if there is one trend change coming out of all this, it might be a partial shift back from the open office, to one with a significant increase in private space.”
Co-working space has been a buzzword in the Covid-19 period, but it was private space that is likely to be sorely lacking, the property expert said.
What to do with a much longer weekly “off-peak” period?
Finally, a key issue for the office sector is what to do with a much longer “off-peak attendance period”. “There has been a visible change to a much shorter weekly peak office attendance period. In the past, the peak attendance period was 5 working days,” said Loos.
“Now it’s probably three days – Tuesday, Wednesday and Thursday – at best, and even Thursday can be quieter. Four of the seven days have at least a very low attendance in many office buildings.
“I expect to see much more creative ways to use that downtime for other commercial activities, possibly by another tenant altogether. Because at the moment it would appear to be quite an expensive exercise by many companies to keep office space that is the largest part of the week is not used,” he said.
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