Companies quickly pivoted to working remotely this year to help do their part to slow the spread of COVID-19. It was a relatively easy transition for most thanks to the widespread adoption of cloud-based software solutions and the availability of communication tools like Slack (NASDAQ: WORK) and Zoom (NASDAQ: ZM). Many companies and employees found that this setup suits them well. Employees benefit by saving time and money commuting to work, more flexible hours, and casual attire. Meanwhile, companies would benefit from this arrangement longer term by not having to rent as much office space.
However, despite the benefits of remote work, there are several drawbacks. "As time wears on, it is increasingly clear to business leaders that there are widening gaps for their companies in activities such as collaboration, creativity, training, mentoring, and the building of company culture, when all employee communication and connection is virtual," according to Owen Thomas, CEO of Boston Properties (NYSE: BXP). He further noted that "we have heard from countless customers and business leaders about these shortcomings and their desire to return to in-person work." Leading office property owner Brookfield Property (NASDAQ: BPY) (NASDAQ: BPYU) noted something similar. The company wrote in its second-quarter shareholder letter that "collaboration and innovation cannot take place remotely or over conference calls and some companies are already observing a decline in these areas amongst their employees."
Because of that, the vast majority of both companies and employees still prefer the office workplace environment. That point was hammered home in a recent survey by the Gensler Research Institute, which found that only 12% of U.S. office employees want to work from home full time. While that's up from 10% before the pandemic, it shows that the vast majority of office workers still prefer that setting, even after giving remote work a trial run.
Leasing data seems to bear this out. Brookfield Property noted in its shareholder letter: "It is a strong testament to the high-quality nature of our portfolio and continuing demand for premiere space that despite the challenges posed by the economic shutdown, our operating personnel were able to execute over 650,000 square feet of leasing volume during the quarter. Importantly, leases were signed at rents 16% higher on average than leases that expired during the quarter." Boston Properties also had no problem signing new and renewal leases during the period, as it locked up contracts for 942,000 square feet of space. Meanwhile, most office tenants continue to pay their rent like clockwork even though they're not using most of their space. Brookfield collected 100% of its office rent during the period, and Boston Properties received 98%. While those high rates might not continue during a prolonged economic downturn, it suggests that their tenants aren't planning to abandon their office space by permanently allowing their employees to work from home.