The million-dollar question that people in the commercial buildings industry have been asking in light of the COVID-19 pandemic is: how will this reshape or affect the need for office space moving forward? It’s a critical question that the team at Brightline Strategies answered at the 2020 BOMA International Conference & Expo on Wednesday during their educational session, “Data Insights: The Impact of COVID-19 on Commercial Office Tenants.” Brightline Strategies has been partnering with BOMA International to expand their research on the impact of COVID-19 and identify new trends in the industry as a result of the pandemic.
This insightful presentation—jam-packed with statistics and data—was based on a research study conducted among hundreds of commercial office users and tenant decision-makers on how the COVID-19 public health emergency has impacted their businesses and attitudes towards their workplace environments.
It revealed many critical insights into how office tenants’ values and expectations have changed as a result of the pandemic when assessing shared/common amenities as well as other property physical features and service elements.
It also provided a look directly from tenants at the possibility of reducing their square footage due to business impacts versus seeking larger, more socially distanced spaces, including planned design changes and practices that facilitate reopening in the safest, most effective way possible.
To set the stage for the conversation, Michael Broder, president and CEO of Brightline Strategies, shared data on how the pandemic has hit commercial tenants, noting that 7 in 10 commercial office decision makers reported a 25% dip in revenue and need to reduce overhead. This financial pinch has resulted in a number of tenants struggling or potentially struggling to pay rent and payroll, as seen in the following breakdown:
- 21% struggled to pay rent; 33% may struggle in future
- 23% struggled to pay payroll requirements; 32% may in future
- 62% office tenants seeing less value in their physical space than they had before
- 37% applied for small business emergency loans
- 33% offices shut down completely
Tenants in various market sectors reported seeing less value in physical space today than in the past prior to the pandemic. According to the Brightline study, the technology and real estate sectors topped the list at 82% and 81% respectively, while 60% of healthcare, 58% of professional services and 54% of manufacturing companies are reconsidering the value of physical space. Further, a majority of tenants with larger square footage see less value in the spaces they lease, with 74% of tenants with 25,000-50,000 square feet indicating a decline in value and 67% of those in the 10,000-25,000-square-foot category seeing less need for space.
Interestingly, when asked whether the coronavirus emergency is perceived to be a temporary blip on the radar screen or a scenario that represents a tremendous inflection point in workplaces necessitating a rethinking of their space needs, 57% plan to transform their workplaces, while only 29% believe it’s a momentary setback. Broder also pointed out that those with larger square footages and higher price per square foot (PSF) rents are significantly more likely to recognize the transformative effects of the pandemic.
Another burning question on everyone’s mind is: when will we see a return to normal levels of business activity and profitability? The slide Broder shared read like a consumer confidence index, revealing that just over half of the survey respondents (51%) believe normal office operations will resume by July, with at least 29% believing they won’t resume until October-December 2020. Additionally, more than 4 in 10 believe a return to pre-pandemic profitability will not occur until late fall through the end of the year.
So, how will these attitudes ultimately translate into office sizes and square footage moving forward? According to Brightline’s research, just over half of tenants say the coronavirus emergency would lead them to reassess their space needs (51%), and those most likely to reassess their spatial needs include those with larger office footprints and those paying more per square foot. Broder pointed out that even among those for whom this is a temporary blip, 49% indicate they would reassess their space needs, while 60% would reduce their square footage. Most respondents cited changes that include reducing private office numbers and sizes, reducing size of common areas and for larger firms, adding hoteling desks, reducing conference rooms and going to an open floorplan.
Finally, as buildings begin to reopen (see our Reopening Buildings Best Practices eBook), Broder mentioned what tenants are looking for from owners and property managers in both the short and long term. In terms of near-term features and services, 65% consider twice-daily office disinfecting as positive, while 56% of respondents would like to see a one month rent deferral. Also, a majority of tenants (55%) now would like an on-site health/wellness advisor available as they begin transitioning back to their offices.
Further down the road, 55% of survey respondents support emergency relocation services during threats or biohazards, while 53% of responding tenants plan to modify the design of their space for social distancing.
Clearly, the impact of COVID-19 on commercial office buildings is significant, to say the least. With these insights, facility executives should have a better understanding of how this crisis is affecting tenants and why.