Office space, working from home, and COVID-19

The pandemic’s lasting impact on the market for offices

Fast-forward to September 2020: many Canadian companies will likely be returning to a new normal across the country, including having some of their employees go back to their offices. But not all of them every day, which will reduce the demand for office space. Or will it?

As of late March 2020, nearly five million Canadians who normally don’t work from home (WFH) were doing so. Add the couple of million who normally WFH, and we were up to 40 percent of Canadians settling down to work at the kitchen table or a desk in the corner of the living room every business day. Three-quarters of us expected the trend to continue even after the pandemic, while two-thirds said they would like to work from home more often. There are, of course, many industries where WFH isn’t practical, but for sectors like financial services, insurance, law firms, real estate, and professional services, it seems possible that only about 50 percent of us will need to go into the office on any given day.

By this September, assuming there is not yet a cure or vaccine for COVID-19, Canadian companies need their offices to be open…but pandemic-proofed. We’re going to clean hotelled (shared) desks more often, might install plastic shields between workstations, make the hallways one way, use contact-tracing technology, and dispense with open buffets. However, the single biggest change is likely going to be density: our employees will need to sit farther apart, which means our offices will only be able to hold 50 percent as many people on any given day.

The decline in the number of workers per office per day due to WFH will almost exactly match the lower density needed for social distancing, meaning that the NET effect of these two factors on demand for office space will likely be close to zero.

Caveat time: if a vaccine comes sooner than most expect, a magic-bullet cure is discovered, herd immunity is achieved sooner than looks likely now, or companies decide not to adhere to distancing protocol in the office, the WFH effect would likely reduce the demand for office space. That will, however, be mitigated by the fact that many firms have long-term leases. According to David Cairns, senior vice president at CBRE Canada, “Forty percent of tenants in the downtown Toronto market are big companies such as banks, law firms, etc., with five-year-plus lease obligations: overnight change is not possible, and meaningful change in office layouts is likely to take years.”

Although offices have not yet reopened, experts are suggesting that a staggered layout will be necessary for workers to be safe: not only can they not sit directly beside someone else, there also needs to be physical distance in front and behind. Various seating plans are being proposed, but this one shows an office floorplan that used to have 150 seats and now holds only 48, suggesting a two-thirds decrease in maximum capacity. Add in the need to clean meeting rooms between uses and to avoid congestion in hallways, bathrooms, and around multi-user services such as printers, and a 50-percent density reduction seems probable.

Halving density (or doubling the square feet of space per employee) isn’t impossible. As an example, our old Deloitte offices in Montreal and Toronto ran about 300 square feet per person and our new offices (which are gorgeous, by the way) are 160 square feet. Assuming a lot of companies similarly increased density in recent years, doubling the space per employee would put them back to where they were only a few years ago.

The average square feet per employee was 151 in 2017 in the United States. Compare that with 425 in 1990 (three times higher) and 600 in 1970 (four times higher).

It’s not just about square feet, of course—it’s about agile square feet. David Cairns again: “Enterprises are going to value not just flexible lease terms but agile build-outs more than ever in a post-pandemic world.”

At some point, there will likely be a vaccine, cure, immunity, or mix of all three. And something interesting will happen then. We may go back to the fifty-year trend of increasingly higher densities, which would allow companies to reduce their real estate bills. Or we may find that workers will have adopted a longer-lasting mindset around distancing. Even though there may no longer be the risk of infection, many of us may permanently feel claustrophobic—or should I say coronaphobic?—when co-workers sit or pass too near.

And chats around the water cooler will change into chats around the giant jug of hand sanitizer—or on Zoom, for those who need never come into the office at again.

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