Commentary suggesting office space as an asset class or as a place for doing business is over in the wake of COVID-19 is wide of the mark.
Two correlated trends indicate office space has ample longevity thanks to the reimagining of conventional office space to meet new social distancing, health and safety expectations, while landlords are realigning stock previously offered as retail space for commercial use.
Office space will always have a role
Research from Roy Morgan indicated that over 4.3 million people (32% of working Australians) worked from home during the pandemic. While plenty of Australians reported enjoying working from home, another survey found that 52% of those who did some paid work from home, and 55% who do some unpaid work from home say they ‘found it difficult to switch off from work’.
Then there are other considerations that aren’t easily addressed if workers stay at home, such as efficiency, productivity, and mental health. Also, there is a school of thought that working from home has succeeded only because the majority of employees have viewed it as temporary gimmick, rather than as a permanent solution.
Retail space as a commercial option
There is no doubt that COVID-19 has had an impact on retail spaces. The upshot is that existing retail landlords are considering whether they can convert, for example, a food and beverage space to office accommodation. For their part, buyers and tenants are starting to think more creatively about how to use retail spaces to house office workers. Ground floor retail space has always been available to professional services firms such as accountants, mortgage brokers and solicitors. But switching a food and beverage space to an office layout is a new trend we’ve noticed since COVID.
While office space is significantly cheaper per square metre than retail, the transformation will help landlords attract suitable tenants longer term than if they were to persist with a food and beverage configuration. Thanks to online sales, retail property values were already under pressure, and COVID-19 has merely fast-tracked the shift of some properties to commercial spaces.
Driving demand for retail conversions
Some businesses are seeking street-level properties as the social distancing measures in place for lifts and elevators in multilevel buildings is causing office traffic jams. Previously where 25 people could be jammed into an elevator, new social distancing laws allow just two people in a lift at any time.
In larger office blocks the logjam of workers this is causing who are trying to access their office can be many hours. This situation is just not manageable for many businesses, especially smaller SMEs. Therefore, if there are commercial spaces with easy access, such as a former street-level retail shop, elevator bottlenecks can be eliminated
Reimagining spaces within commercial towers
Quality A and B grade office space in multilevel buildings will still be required by businesses as long as there is enough room to accommodate social distancing of 1 person for every 15-20 square metres. The ratio before COVID was closer to 5 square metres per employee. It’s worth noting the 15 square metre spacing is in the context of fit out calculations for office space and is significantly wider than the four-square metres per person standard which is being suggested by the government at present.
While firms won’t have to supply workers with Maxwell Smart style cones of safety, they will have to provide workstation dividers. That said, larger spaces between staff remains a more critical issue than the provision of working pods.
Opportunities for tenants
Tenants will likewise have more options to consider when looking for the right commercial space. They can potentially eliminate those options where lifts are required to move 50-60 staff up to Level 10. Consequently, the more considerable freehold assets held by the super funds and REITs will be fighting to attract tenants. To keep vacancies in check, they will need to provide generous incentives and draw on the unique amenities and energy efficiencies of their buildings.
On the issue of staff movements that I referred to earlier, those businesses choosing to maintain their current commercial locations are using rostering systems to reduce the numbers of people in an office at any one time. It might be that some staff are expected in an office on Monday, Tuesday and Thursday, while another member is at work on Tuesday, Thursday and Friday. The fact is that plenty of business will still need to be achieved face-to-face in meeting rooms, board rooms and around water coolers.
In summary, there will continue to be demand for A-grade commercial space with additional business overflowing into former retail space.
For all your commercial property sales and leasing enquiries in North Sydney contact Raine & Horne Commercial North Sydney on (02) 9925 1222.