Coronavirus could change office space requirements

CreativeCubes.Co South Melbourne
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HOME-BASED and flexible working is being tested during the coronavirus and if this experiment works out, one of the unintended consequences post covid-19 is that office tenants will review their real estate requirements and reduce their footprint, according to UBS.

UBS’ Outlook Special: Potential Impact of Covid-19 on Global Real Estate Markets Report said lessons will be learned after this episode is over.

Real estate strategist Fergus Hicks said the pandemic is an evolving scenario with varied economic impacts, depending on country, market, and sector.

“The severity will, of course, influence real estate demand and will most likely change by the day.

“It is clear that occupier demand will be negatively affected, most significantly in retail, leisure and hotels, as movement is restricted and consumer confidence dented. As a second round effect, this will impact on logistics demand as goods movement slows, although there is a potential short-term benefit to some forms of ecommerce,”

Also due times of uncertainty, businesses tend to defer decision making, and this will affect job creation and therefore office demand.

Hicks said post-covid19 office tenants will be reviewing their real estate requirements. He added that before the pandemic, working from home or mobile working was arguably more a concept that was “good to have” but never really implemented in a big way.

“The notion of mobility and flexible working is being truly tested during this COVID-19 crisis.

“As countries seek to limit human-to-human contagion, many companies have activated business contingency plans, with home-based working becoming a daily routine for many workers. In other instances, employees are dispatched to alternative work locations where they can perform the same functions with the aid of technology,” he explained.

Hicks said when the crisis is behind us, “we believe many office tenants will review their fixed real estate space requirements, especially if this involuntary experiment with mobile working has resulted in comparable levels of efficiency,”

He stressed that this does not mean that companies will cut down on their office footprint drastically, but it is likely that there might be a stronger inclination towards shared workspaces, which frees up the long-term lease commitments of many office tenants.

Hicks said corporate demand for co-working or flexible working spaces should also get a boost, as it becomes increasingly clear that technology can enable the optimisation of office occupancy costs without sacrificing productivity.

“This is not all good news for office landlords but it does suggest that adopting active leasing strategies to capitalize on the workspace of the future may bear fruit for pre-emptive office space owners.” Hicks said.

Having said that, UBS said low office supply will continue to support real estate market fundamentals.

“Serviced office models may be properly tested for first time as their flexibility enables the self-employed and corporates to quickly vacate space they no longer need.

“Over the medium term, forced working from home may break down cultural resistance in some markets and reduce floorspace per worker ratios,” the report said.

Melbourne-based flexible office and coworking provider CreativeCubes.Co is seeing increased demand from businesses who are currently reviewing their workplace strategy due to covid-19.

Co-founder and CEO Tobi Skovron said he is receiving a lot of enquiries from businesses that are looking to split their teams up across multiple properties across CreativeCubes.Co’s Melbourne locations, including Richmond, Hawthorne, and South Melbourne.

“Some employees are unable to work from home. Businesses are taking precautions by splitting up these teams across multiple properties, rather than having them 100% in one location which can increase risk. The flexibility that our coworking and serviced offices provide caters to this and offers a solution at short notice.

“Businesses increasingly want the flexibility to scale up or down very, very quickly – particularly with the current uncertainty of COVID-19. We are speaking with our members to support them on an as-needed basis to provide as much flexibility as possible with their membership terms and business requirements,”

Skovron said in the coming weeks or months when businesses are in recovery phase, they’re likely to continue to want increased flexibility to scale up or down at short notice.

“The volatility in the world is encouraging businesses to seek sensible levels of flexibility in their ability to expand or reduce office space.” Skovron concluded.

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