Vacancy rates have dropped – and will likely remain low, says CallisonRTKL.
Global architecture, planning and design firm CallisonRTKL has released its Forecast 2021 report, with a key focus on the workplace sector.
Pre-pandemic, the workplace was an evolving concept. It continues to be in an evolutionary state; only it is moving that much faster now. Tenants delay decision-making until there is more clarity on the immediate future, while many are already leveraging flexible space as part of their overall portfolio. Still, the current environment is causing an evaluation of what quantity of flexible space they use and what type is its programmatic purpose.
The need for Class A office space in key locations will remain strong, with stakeholders agreeing that the requirement and demand for workspaces will reduce in scale but not disappear. This demand will see more tenants release their high-quality, often fitted-out spaces, some of which have never been occupied, with the volume and variety of commercial spaces available, making it a tenant-friendly market.
This trend is present in key global cities such as London, New York, Shanghai, Dubai, and Melbourne, where supply is far outpacing demand as the delivery of newly built or comprehensively refurbished space flows. Early indications suggest that unless there is a significant increase in leasing activity, these supply levels are likely to trend upward into the new year.
The opportunity lies in re-imagining existing spaces or repurposing them into other uses with the next- generation office emerging as a hybrid concept for landlords and operators. In the short-to-medium term, there is still significant uncertainty regarding what the future holds. Tenants will increasingly consider flexible workspace as an interim solution while they define a long-term strategy. The trend toward decentralization will play into this and reduce overall demand for traditional leased office space.
The traditional office and its typical business functions will remain pivotal to specific industries. However, moving forward, this model will more commonly co-exist with a range of other spaces that provide alternative working environments as the lines continue to blur between homes, hotels, and offices.
In the short term, once countries, municipalities, cities, and employers deem that it is safe to return, the office’s function will be to support the people who cannot work effectively from home or those who want to be in the office. In the long term, while some companies may reduce space requirements, job creation and de-densification are likely to balance this out. As a result, the aggregate level, the impact is minimal.
Additionally, JLL found that global leasing activity in Q3 was down 46 per cent from a year earlier – while this is an improvement from Q2, demand remains subdued. As the region where Covid-19 first emerged, Asia Pacific seems to be the bright spot, with Q3 activity only down 5 per cent year-on-year, whereas Europe declined 52 per cent and the US 55 per cent. The firm also reports that the United States sublease market – a key barometer for the office market – is now larger than during the dotcom bubble and could feasibly reach 150 million square feet of availability by the end of 2020.
“This aligns with what we have been seeing from our tenant clients,” says Michael Horton, Associate Vice President in the CallisonRTKL Dallas office. “Clients are holding on entering new spaces. Those that have, do not have consistency in their approach – whether in densification, social distancing or requiring a return to the office.”
In a PwC CEO Panel Survey, CEOs view low-density workplaces as a lasting change in most regions.
Yet related to workplace density, regional cultural differences are glaring. In Latin America, CEOs are most likely to view low-density workplaces as an enduring shift (69 per cent) and are correspondingly inclined to be more employee-oriented in the future (19 per cent).
By contrast, CEOs in North America are evenly split (at 49 per cent each) about whether low density workplaces are here to stay.
For 2021, what new metrics and measurements will offices of the future use as a litmus? Naturally, if density reduces, this opens up new design opportunities. CRTKL Senior Associate Claudia Beruldsen in Munich, Germany, believes these new opportunities depend on footprints and what companies do from a real estate perspective to respond to reduced densities.
“From a design perspective, it makes flexibility and connectivity in the work environments important because in-person meetings will likely be intentional or an uptick in hybrid work solutions of in-person with remote meetings connected via technology.”
Additionally, the advent of 5G technology and new sensor technology will allow portfolio-wide optimisation and management to help future proof real estate portfolios.
As work-at-home continues, threats remain to strengthen social collaboration and foster relationships that typically come from gathering in-person. CallisonRTKL administered surveys consistently told us the number one reason employees want to return to an office is an in-person collaboration with team members.
The future hybrid workplace model means offices need to provide a vital cultural hub for employees who make an effort to come in and offer the technology to connect to employees at home easily.
“There needs to be a reason to come to work,” says Jeanne Wood, Workplace Strategist in London. “Having the support – whether it’s technical or operational that helps ease the task or type of work they are doing that day is important to create that hub. Also, creating a place with more collaborative, specialised uses for sharing, socialising, and learning from others fosters a stronger workplace culture.”
As in residential spaces, the workplace of 2021 will focus on creating outdoor spaces to enhance wellness and screening at entry points and occupant health monitoring systems. Planning for this enhancement is where flexibility comes in.