It's becoming conventional wisdom that the coronavirus pandemic will permanently dent the demand for office space, but before real estate investors act on that assumption, consider this alternative view from MetLife Investment Management:
"Any stigma or fear that COVID-19 creates related to the office sector, especially as a growing number of firms announce real estate cost savings plans, could create investment opportunities," the financial services giant's institutional investments arm says in a report titled "Back to Work: Office Demand in a Post-Pandemic World."
A more nuanced approach to "offset modest headwinds"
The report argues that the move toward sustainable office layouts -- social distancing and other protocols -- "could offset modest headwinds caused by the likely acceleration in flexible working arrangements."
The authors throw further shade at the notion that millions of Americans now working at home will stay there. "We expect remote-working trends resulting from COVID-19 to have a relatively limited impact on overall demand for office space in the long term but also expect many firms to try (and fail) with permanent work from home (WFH) arrangements in the near term."
So, instead of bailing out on the sector based on pandemic shutdowns, "determining the impacts to office demand requires a more nuanced approach," the report says, noting that many companies already are revamping office layouts to accommodate a new reality.
Zoom into the future never completely materialized
The well-researched and succinct seven-page piece begins with a brief history of teleworking, beginning in the '70s with the first stirrings of the internet prompting futurists to predict an end to the daily commute.
That never really materialized due to mixed results around cost savings and productivity, the report says. Despite the spread of home internet in the 1990s and streaming video in the 2000s, only about 5% of the workforce regularly worked from home from 2005 to 2015.
Then came the coronavirus
Within days in March 2020, half the American workforce began working from home, forcing investment in hardware, software, and culture adaptation.
Executives of some major employers have declared the WFH experiment a success, and the MetLife report expects a "continuous stream of companies" to announce plans to shrink their physical footprint in favor of WFH home policies.
But, the MetLife (NYSE: MET) researchers say, "We believe that many of these companies may reverse those decisions over the longer term.
"To understand where work-from-home policies and future office demand is headed, a more nuanced view may be appropriate."
Finding a "more nuanced view"
The researchers analyzed multiple peer-reviewed studies about office space and human relations at work and considered four factors:
- How many people will permanently work from home full-time.
- How many will have flexible schedules.
- How space use will change.
- How office layouts will change.
What they found is that full-time working from home reduced productivity, but partial working from home increased it.
"We therefore believe the COVID-19 environment may accelerate what companies probably should have done already, namely adopt a flexible WFH policy but not a full-time WFH policy."
"Hoteling" and social distancing considerations
The MetLife Investment Management researchers believe demand for office space might not be as large as initially expected as America reopens, even if "hoteling" becomes largely prevalent as a staffing strategy.
Hoteling means offering a limited number of desks on a first-come, first-served basis, which could lead to a decrease in office space demand among firms who downsize leased space to the point that not everyone will fit in a socially distanced workspace.
Past experiments with this approach have yielded unimpressive results, and floor plans that space people could offset that trend if it does become widespread, the researchers write.
Investor questions in a pandemic-plagued future
The report concludes by challenging forward-leaning investors to consider a few questions, including whether "pandemic-compliant" office planning means favoring lower-density locations in suburbs or smaller cities, especially where public transit isn't required, and how remote working trends vary by industry.
And, sadly, COVID-19 might be a harbinger of more to come.
"Pandemics are becoming more common," the MetLife report notes, "and we believe sustainable offices could become an increasingly important adaptation not just in 2020, but also in coming years and decades."