Out of the office
Pandemic shifted work to home for many, but workers return to offices as local office market remains strong
Employees of the health care research and market strategy firm LIFT have always had the flexibility to do some of their work from home. But when the coronavirus began to spread in March, the Chattanooga-based consulting firm immediately emptied its downtown office in the Hogshead building and shifted the entire staff.
“With the pandemic, we went from dipping a toe in the water with respect to work-from-home to jumping straight into the deep end out of necessity, as was the case with so many small businesses,” said Dave Chlastosz, the president
and CEO of LIFT. “But while we have learned and embraced the benefits of this model, it also has affirmed that there is no replacement for humanto-human connections in a culturally relevant space, even if those connections look a little bit different through the lens of social distancing. “
As commerce has rebounded and workers are increasingly returning to the office, Chlastosz has brought most of the senior staff back to the office, but at a new and more flexible site outside of downtown in the Cambridge Square shopping and office park in Ooltewah.
The new office still has work stations, a conference room and break area like the company’s former work facility downtown. But it also includes features that Chlastosz said “supercharge creativity,” such as music and displays, comfortable couches and chairs, a bar area and outdoor space to entertain clients or simply unwind and socialize.
“It’s a space that we all use and share in our own unique ways—merging the perks of work and home, and then adding in our cultural disposition as a sort of ‘secret sauce,’” Chlastosz said.
The shift in the location and type of office used by LIFT is among the legacies of the pandemic that upended where and how much office work was done over the past year.
In Chattanooga, most office users didn’t relocate or revamp their spaces the way LIFT did, but the biggest office-based employers in Chattanooga such as BlueCross BlueShield of Tennessee, the Tennessee Valley Authority and Unum, did shift most of their staffs to remote work.
As the new year begins, many companies are rethinking their office environments, both during and after the pandemic.
The COVID-19 pandemic emptied many of Chattanooga’s offices and quickly taught tens of thousands of workers how to do their jobs online from home, lessening the demand for office space. At the same time, a decades-long trend toward reducing the average workspace for each employee may be reversed as social distancing becomes more of the norm, even after the pandemic is over.
New technologies and social norms also are allowing more flexibility in some office designs, although local landlords report that the move toward open offices and shared space may be limited, at least while the virus lingers.
CBRE Econometric Advisors projects that in 2021 remote working could reduce the overall need for office space by 15%. But office-using employment will continue to grow after the recession and office landlords may offset some of the loss in office jobs by the increase in space needed for each worker as social distancing becomes the norm.
A recent report by Cushman & Wakefield predicts the U.S. office sector will lose about 145 million square feet of office occupancy in 2020 and 2021 as the result of the economy losing a net 1.7 million office jobs.
“The hit to demand for office space — measured by the level of net absorption — is approximately 20% more severe than what occurred during the global financial crisis period of 2008 and 2009,” Cushman & Wakefield analysts said. “Office leasing fundamentals will be significantly damaged in the near term.”
Cushman & Wakefield projects office leasing won’t return to prepandemic levels until 2023, and building rents aren’t expected to fully recover until 2024 or later.
The office market may fare better in Chattanooga than in many U.S. cities, especially large urban cities where conditions are more crowded and expensive.
“If you can work from anywhere, Chattanooga is a very attractive and low-cost city to be in, and as more remote workers come to live in our city, that will create more demand over time for office space,” said Russ Elliott, managing broker for Pointe Commercial Real Estate.
The critical need for remote work is likely to ease in 2021 as vaccines spread and the virus is curtailed, Elliott said. But when workers do return to many offices after months of working remotely at home, their return is likely to be much different than it was before the pandemic.
“This has been the most dramatic change in office work that I have seen in my 32 years in this industry,” said David Devaney, president of NAI Charter Real Estate Corp. “When you have a slowing economy, the office market usually slows down in steps. This year, it was like slamming on the brakes in mid-March and that has affected all areas of office space, except for maybe medical space.”
Devaney said he thinks there will be “a moderate pullback” in the demand for office space even after the vaccines are taken, the virus fades and business life returns to a more normal, pre-pandemic era.
“It’s not going to be a 100% return,” Devaney said. “Companies have found that workers can work remotely and, even when employees come back to the office, they could work on staggered shifts so corporate real estate users are reevaluating their office needs.
“I don’t know if it will be dramatic, but there will likely be a reduction in the need for corporate office space. The good news is that Chattanooga wasn’t overbuilt.”
Indeed, Chattanooga landlords report office occupancy levels generally above 90% and they haven’t yet seen either a big drop in occupancy or rental rates since the pandemic pushed many workers out of offices and into remote work.
“COVID hit us when we had a pretty high level of occupancy and we have long-term contracts in place,” said Steve Hunt, managing partner of Berry & Hunt, one of the largest downtown office owners and management companies in downtown Chattanooga with more than 700,000 square feet of commercial building space under management. “We have one tenant that we have a rent-deferral agreement with at this time, but everything else is business as usual.”
Hunt said about 95% of the nine buildings controlled by Berry & Hunt are still under lease and Hunt is hopeful that downtown Chattanooga will remain vibrant once the pandemic is over. More office workers may work from home in the future, but that will be offset, at least in part, by the likelihood of more office space per worker for those still going into the office and less of the open, shared offices that were growing in popularity before COVID-19 began forcing more social distancing, Hunt said.
“We’re seeing less of the open office design and more of a return to a more traditional office layout with enclosed offices and more space per employee,” Hunt said.
While most whitecollar workers can work remotely, at least some of the time, many cannot, especially in the growing medical field. As a result, demand for physician offices, outpatient facilities and other health care-related offices continues to grow.
“We’ve had a great year in 2020, in part because medical office leasing has remained very busy and we do a lot of medical offices,” said Tiffanie Robinson, founder and CEO of Second Story and its parent company Lamp Post Properties.
But Robinson is more cautious about other office users who may switch some of their staff to at-home jobs.
“We don’t see traditional offices returning probably until the third quarter of 2021,” she said. “There are people out there looking for office space, but it’s just not as many we are used to before the pandemic hit.”