Covid's impact on office space
Barfoot and Thompson Commercial has noticed a fundamental shift in New Zealand's approach to office space since the country came out of lockdown.
Lorne Somerville, the office leasing manager at Barfoot and Thompson Commerical, says corporates are rethinking their requirements as more of their employees request to work remotely.
“While things have mostly returned to normal in New Zealand, there is still global economic uncertainty. The virus is still active in other parts of the world and that could affect international trade and therefore future income streams.
“We are receiving enquiries about shorter lease terms and smaller spaces. It may be a smart move for landlords to not only rethink the layout of their properties but also lease terms to attract the right tenants.
“Businesses are being cautiously optimistic about the future so cutting overhead expenses is an immediate goal.”
Somerville says the most obvious change in New Zealand's office landscape post Covid-19 has been the rise in remote working. Throughout lockdown the vast majority of Kiwis had to work from home. As the country shifted back to normality, and offices opened up again, businesses allowed many of their employees to continue working remotely.
“This is reshaping the office rental landscape in Auckland. Businesses are more hesitant to commit to threeand six year leases with so much flux in work styles and financial unpredictability. People are wanting to do more work with less resources to create savings and stability.”
Somerville says this trend does not mean the end of the office but the change in working practises as a result of Covid-19 has altered what employers and employees expect from the office.
“People working remotely want flexibility but also crave to be around colleagues not just for the social component, but to boost creativity and brainstorming.
“The ideal scenario seems to be working from home or a cafe two days a week and then head into the office the rest of the time. Many businesses are crafting schedules where only a percentage of staff is asked to be inhouse on any given day.
“Therefore, hot desks, shared desks and large community tables are making lots of sense these days. Landlords need to think about how changing the layout of their office space can leverage the income opportunity of every square metre.”
Somerville says landlords with capital may benefit from carrying out a refit. Other may even want to think about allowing shared leases so that more than one business can work in the same space.
“Currently, subleasing is something that we are seeing a lot of. Many companies are looking to sublease part of their office footprints or starting to search for subletters as they reevaluate their requirements for space. As tenants reassess their need for large blocks of closely packed cubicles and big boardrooms, landlords showing flexibility will see the best results. Whether landlords own an empty wing, floor or even a building as tenants complete staff reductions and remote working, they can still monetise the space in a sublease strategy,” Somerville says.
He says institutional investors are firm in their belief that demand for space will return. “However, nobody knows specifically what offices will look like in the future. The big question mark is, which changes forced by the pandemic are short-term trends and which are fundamental shifts. This is why subleasing makes sense for now.”
There are a lot of tenants who expect they will become smaller, Somerville says, but they're just not sure how to do that yet, as at least some office space remains critical in order to operate.
“It’s still not clear how successful teleworking arrangements will be and whether they will be sustainable,” Somerville says
“For now, many companies are going to press pause on any major moves to shed or take on real estate which includes both renting or purchasing. Contrarily some commercial estate experts are suggesting that some firms may want to expand their footprints in an effort to accommodate physical distancing and other safety measures in a post-Covid workplace.”
Somerville advises against pursuing a strategy that may not hold up to chnaging events. “Nobody can accurately state what the future will bring as these are unprecedented times. I recommend a thoughtful strategy not taking any extreme measures too soon as the dust continues to settle both locally and globally. Office spaces are notoriously subject to trends that subside so investing too much money into a concept that may be unpopular or not practical a year or two from now would be unwise."
He adds: “As far as what things will look like a decade from now, there may be some exciting things on the horizon. For example, converting office buildings into residential units could become increasingly popular, as there is a strong demand for housing in Auckland.”