Back to the office: location is gaining even greater importance
The number of people working from home has never been higher. Nor has there ever been as much vacant office space. Employees, companies and investors alike are wondering just how the corona pandemic is changing the workplace.
Worldwide, office vacancy rates went up in 2020, the year of the corona crisis. Short tenancy agreements made up an unusually high share of real estate companies’ sales per square foot. Given the ongoing crisis and the associated economic uncertainty experienced by many companies, vacancy rates are expected to rise further this year. However, the longer the crisis lasts, the more reasons there are to return to the office.
Most employees who have been working exclusively from home in the past few months are slowly but surely getting fed up with the situation. This is particularly true for those who do not have the luxury of a dedicated office. Although digital video communication tools, such as Zoom or Teams, function perfectly, they cannot replace spontaneous interaction between colleagues. It is becoming clear that working from home is reaching its limits.
Younger employees feel neglected
Identification with the company is on the decline among many employees, and workplace culture is crumbling. Again, the crisis has made it clear that a physical workplace is important. According to a study conducted by Oxford Economics, it is particularly the younger workforce between the ages of 25 and 34 who feel disadvantaged and demotivated. At the start of their career, young employees depend on coaches and mentors; however, face-to-face interaction requires an office environment. The surveyed companies also stated that a shared workplace is crucial for attracting new talent.
Numerous companies have expanded their rented space in the past few months.
Office space will thus continue to play an important role. On the one hand, a look at South Korea or China, which are both ahead of us in the pandemic cycle, confirms this view. Office occupancy rates have bounced back to pre-crisis levels in both countries. On the other hand, numerous companies, for instance in the IT sector, have expanded their rented space or rented further premises in the past few months.
Raising the feel-good factor in the office
In the cities, demand is particularly high for office space in central locations. We are observing a clear focus of tenants on prime locations and properties of the highest quality. This led to stable rents in the premium segment during the crisis.
A central location with good public transport connections and short travel times has become a crucial competitive advantage.
A further reason consists of rising expectations among tenants. A central location with good public transport connections and short travel times has become a crucial competitive advantage, especially during the crisis. On top of this, new hygiene standards require more space for the workforce. After the isolating experience of working from home, shared areas at company locations are becoming more important than individual offices. More space is dedicated to cafés and seating areas for meetings. The feel-good factor is turning into a key element in the office environment. Apps for controlling room temperature or air-conditioning and lifts without touchscreens are becoming increasingly popular.
Investment in office space remains attractive
Despite the trend towards working from home, these developments underline the fact that office space is still in demand during the corona crisis. Consequently, respective investments remain attractive for those with a long-term horizon. If you are thinking of investing in real estate, we recommend focussing on properties in prime locations. This will ensure that the properties will generate a sustainable, long-term cash flow. On top of this, it is important that space parameters are flexible and meet the needs of the local tenants.
