Tenants Struggle to Build a Bridge to Somewhere
Date Posted: July 14, 2020
Posted In: COVID-19 UPDATES, Discussion,
From St. Louis Business Journal: In the span of roughly three months, working from home has become a critical extension of Corporate America that is, perhaps indefinitely, transforming the way we look at the office.
Top of mind for most companies at the moment is how to cost-effectively transition employees back from the safety and security of their homes without jeopardizing their health and mental wellbeing at the office. Such moves require a bevy of investments in protective gear, signage and repurposed space that, for a growing number of companies, inconveniently correspond with mounting strains on sales and revenue.
But longer-term — and potentially more costly — structural changes also are at play as employers grapple with how best to utilize office space in a post-Covid-19 world. The shifts are expected to alter the economics of doing business and how employers engage with coworkers at all levels of the corporate hierarchy. That bodes for big changes in how millions of square feet of commercial office space is utilized, not to mention the ripple effects such changes will have on central business districts, real estate experts agree.
“I think everyone’s recognized that what we’re experiencing right now is not just a blip on the radar screen, this is kind of a marked point in history,” said Damla Gerhart, senior managing director of workplace in the Chicago office of CBRE. “Companies are going to have to think about how they provision and operate their office spaces. … We might experience something like this again in our lifetime, and companies are saying maybe next time around we’ll be a bit more prepared for it.”
Many of the preparations and precautions will fall at the doorsteps of landlords, particularly when it comes to common areas and high-traffic spaces such as elevators and stairwells. Estimating the costs and resources required to accommodate tenants already is proving a challenge, as most employers lack clarity on when and to what degree they plan to get back to the office. As to how tenants will then equip — or demand their landlords equip — spaces is anyone’s guess, real estate experts say.
In more congested parts of the country, such as the Washington, D.C., region, a majority of employers don’t plan to bring all their workers back until after the start of new year, and some see no clear path toward returning to the occupancy levels they maintained before the outbreak. Continuing to pay rent on space designed for 100 people when only 50 or fewer are coming in on a regular basis might seem wasteful, and that’s something some tenants will look to adjust.
This is no small matter; for the typical office tenant, Class A rent tends to hover round $50 per square foot in most cities, ranging up to as much as $70 and $80 per square foot in high-demand business clusters, according to a sampling of 50 major metros compiled by JLL.
Yet while the nation is still living in the age of the coronavirus, shedding excess space or making other long-term changes isn’t a prospect many are willing to commit to … yet. The indecision has broad and potentially significant financial implications for tenants and landlords alike.