As the United States slowly emerges from the Covid-19 Pandemic (“Pandemic”), many U.S. companies are re-evaluating their post-Pandemic employee and staffing needs. The results of such re-evaluations will directly impact how many square feet of commercial office space the respective companies will require to operate of their businesses. Specifically, due to the Pandemic’s impact and its aftermath, many companies either: (a) need to amend their current commercial office space leases to reduce their footprint to reflect operational changes such as flex work schedules and to follow recommended governmental health guidelines; or (b) for those companies which have thrived during the Pandemic (i.e., Zoom Video, Shopify, Adobe, Door Dash etc.), need to increase their existing foot-prints and/or lease new space to accommodate increased employee count as well as follow recommended governmental health guidelines.[1] A specific example of the latter is Google, which has substantially increased their hiring of in-person positions.
In many commercial office spaces, companies have implemented a hybrid routine by reducing the number of leased offices and rotating their employees’ use of the remaining offices on a daily or weekly basis. Companies are also physically re-designing their existing commercial office spaces by: (i) installing docking stations in the leased offices, so that each leased office may be used and shared by more than one (1) employee; and (ii) having a dedicated conference space or spaces, as well as appropriate amenities and bathrooms.
In addition to the macro-economic effects of the Pandemic on the commercial office space market, studies have shown that many employees have grown weary of working at home, with interactions reliant on Zoom, Microsoft Teams, or other conferencing applications versus a more traditional commercial office environment. Moreover, many companies have determined that their employees have lost a certain sense of collaboration, teamwork, and morale that can only occur in person, which has led many companies to decide to return back to the office, thereby leading companies to maintain existing space and/or continue to grow.
Despite the overall increasing demand for commercial office space, there has been little to no change in the rental rates charged by commercial office space landlords since the start of the Pandemic and real estate mogul Sam Zell attributes such stable rental rates to the fact that interest rates have remained low.[2] However, Federal Reserve Chair Jerome Powell recently reported that the United States Federal Reserve is planning on increasing interest rates three (3) times in 2022[3]; and, therefore, there likely will be a market correction. U.S. CEO of Colliers, Gil Borok (“Borok”), stated that he believes that denser U.S. cities, which require workers to make longer commutes from outside of cities to get to their offices, will have a tougher time filling their commercial office spaces to Pre-Pandemic occupancy levels.[4] In contrast, Borok indicated that he strongly believes that commercial office space located in suburban areas where workers will have less of a commute to get to their offices will be the new Post-Pandemic hotspots.[5] Moreover, Borok’s belief in the strength of the imminent Post-Pandemic recovery of the commercial office space market was echoed by real estate mogul and billionaire, Sam Zell, who stated recently that “I think retail is much more of a falling knife than office, and I think that office is likely to recover much quicker than retail”.[6]
With the leasing market of existing commercial office space returning to Pre-Pandemic levels plus the addition of new commercial office spaces that have come onto the commercial real estate market from a number of developers re-adapting retail spaces into new commercial office spaces, now may be an opportune time to evaluate your leasing situation or needs to achieve your goals in an effective and efficient manner.
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[1] https://www.cnbc.com/2021/03/04/zoom-doordash-peloton-led-fastest-growing-tech-companies-in-2020.html
[2] https://www.cnbc.com/2022/01/25/real-estate-billionaire-sam-zell-says-office-space-will-recover-much-faster-than-retail.html
[3] https://www.reuters.com/business/fed-raise-rates-three-times-this-year-tame-unruly-inflation-2022-01-20/
[4] https://www.cnbc.com/video/2022/01/04/suburbs-have-become-popular-for-office-destinations-says-colliers-u-s-ceo.html
[5] Id.
[6] https://www.cnbc.com/2022/01/25/real-estate-billionaire-sam-zell-says-office-space-will-recover-much-faster-than-retail.html