Contact Us July 29, 2020
In the light of the events and impacts across the world due to the Covid pandemic, the way of working of businesses is not the same as it used to be. The market for office leasing is evolving rapidly post the Pandemic outbreak. Until 2019, over 80% of office leasing in Asia Pacific was due to new and expansionary demand. In the US, the share of major leasing activity through the first three quarters of 2019 doubled (5%) compared to 2018, as per a report. But in the aftermath of the Covid outbreak, in Q2 2020, global office leasing activity was 59% lower than a year ago while vacancy rates have started to creep up across the regions.
Work from home policies served as the perfect solution to ensure business continuity. The new normal has proven many businesses that company-wide remote working is feasible. According to IBM report, 54% of U.S adults want to primarily work remotely. Up to 60% office spaces is unused in the new normal, according to another report. Employees demand seamless integration of remote work and office work, and companies have reacted.
Net leasing of office space plunged 73.4 per cent in the April-June period across 8 major cities in India due to sharp fall in demand because of the Covid-19 pandemic, according to Cushman & Wakefield. Also, cities like Delhi NCR and Bengaluru in India saw negative absorption, which also pushed the overall net absorption downwards, it added. Net absorption of office space stood at 3.75 million SFT during April-June 2020 as against 13.98 million SFT in the year ago period as corporates and co-working players deferred their expansion plans.
What does this mean for offices? With the market shrinking and the competitive landscape consolidating, office providers will face fierce competition, and only the best offers will survive. The office of the future must be both highly attractive and cost efficient.
The Future of Offices Lie in Flexibility
Office space still has a pivotal role to play in facilitating essential face-to-face activities that are not easily replicated online. Additionally, there is now an abundance of survey evidence that shows employees are keen to return to the office for at least part of their working week. In the coming months and years, it will make great sense for many businesses to shift their existing offices to smart offices.
Businesses across the world will abandon their commercial real estate in favour of more agile and less expensive smart offices. A smart office has everything a business needs, including workstations, conference rooms, IT infrastructure, recreation rooms, and more. Smart offices enable flexible adaptation to rapidly changing requirements. In the post-COVID-19 era, every significant business will need to move some if not all their employees to smart offices. The infrastructure needs to be flexible and responsive to the needs of the people and the situation locally. Smart offices have other advantages. They already have COVID-19 compliant premises. In addition, they provide intelligent space management, which means businesses that lease space in smart offices share costs. According to JLL report, Co-working spaces have paved the way here, and it is expected that by 2030, a full 30% of office space will be consumed in ready-to-use fashion. Thus, smart offices ensure user centricity, flexibility and sustainability.
Flexible Office-as-a-Service (OaaS) Offering for Facility Managers
Real estate as an asset class is here to stay; however, it is inevitable to reinvent, to stay relevant in this new paradigm. For corporate real estate players, the challenge lies in maintaining the relevance of their offices. Negotiating times on leases have also increased. Flexibility is the tool that helps office real estate players respond effectively to these threats. To adjust to overcapacity in the new normal and to protect valuable assets, real estate players need to proactively embrace flexibility: Use-based pricing models, office-as-a-service and quick reaction to changing needs are required in order to provide attractive and cost-efficient offers. Flexibility is enabled by a data-driven building model, in which real-time data is collected and turned into insights.
Conclusion
Office demand will remain robust in the medium to long-term. It is indisputable that the pandemic induced disruption is changing the rules of the game. The industry will need to reconsider pre-crisis priorities and accelerate new strategic initiatives to adapt to the “next normal”, according to a report by JLL. A de-densification trajectory is emerging as an interim and a permanent state, calling for portfolio rightsizing and workplace redesign. But the office market fundamentals are strong – with low vacancy, stable rental growth and limited upcoming supply. It is expected to recover the fastest once the outbreak is under control.By Raghu Ramachandran
Raghu is the President for Sybrant Real Estate, a leading private real estate / property management services firm based out of Chennai, India that has global customers. Raghu has decades of hardcore experience in Real Estate and Property Development business. In this place he will share his thoughts on real estate as a business, technology, entrepreneurship, and anything else that piques my interest.