Will traditional office buildings become obsolete?
Will traditional office buildings become obsolete as corporates encourage staff to work remotely?
Though there are mixed views on what the long-term impact of the Covid-19 pandemic on global real estate markets will be, one thing seems sure: the ways people work, live and play will change irrevocably.
Whether that will spell the death of the traditional office and the fixed, long-term lease agreements that come with it remains to be seen. But there’s no denying that corporates across the globe will be forced to cut down on accommodation costs as countries sink into recession. Forgoing a sprawling, corporate address (or at least a large chunk of it) in a prime business hub will no doubt make financial sense for many, especially if remote working takes off in a Zoom-enabled world where video meetings have become de rigueur.
SA is no exception, says Michael Scott, research analyst for Sub-Saharan Africa at real estate advisory firm JLL. As the country’s economy contracts further, many businesses face liquidation, which will add more empty offices to an already oversupplied market, he says.
Demand for office space in SA’s major business nodes has already waned noticeably in recent years amid a stuttering economy and rising unemployment.
In fact, the national office vacancy rate rose to a multiyear high of close to 12% in the first quarter — up from 5.5% in 2008, according to the latest figures from the SA Property Owners Association (see graph). In the Joburg node of Sandton, where developers have spent billions over the past decade to add fancy high-rise buildings to the market, more than 16% of office space is empty.
Scott believes that the outbreak of Covid-19, coupled with ever-increasing property operating costs and rising debt obligations, will further reduce demand for traditional office space, particularly given improved network and data capabilities that support remote working. However, because not everyone is adequately equipped to work from home, many companies will promote working from satellite establishments, he says. That could boost demand for co-or flexi workspaces that offer variable "pay-as-you-use" pricing models.
International shared-workspace company WeWork, as well as local brands such as Workshop 17, Spaces, The Workspace, FutureSpace and WorkInProgress have already made inroads into SA’s office market.
The question is, however, whether social distancing runs counter to the co-working philosophy of community engagement, which includes sharing a beer over a friendly game of foosball in a mostly open-plan space.
WorkInProgress general manager Charmaine Lambert concedes that a prolonged lockdown may disrupt take-up of co-working offices in the short term. But she believes demand will bounce back quickly in a post-pandemic economy as businesses look to exchange long-term leases for flexible, short-term ones and corporate failures force more people to become self-employed.
Lambert predicts strong growth in the start-up and SME sector, which should support ongoing demand for co-working offices.
"The world will need more entrepreneurs whose smart ideas can help rebuild economies and create employment opportunities," she says. "But start-ups and entrepreneurs want to connect and interact with like-minded people. They thrive on being able to kick ideas around and sense-check decisions with others."
Lambert says the environmental benefit of reduced commuting to the office is also likely to support the notion of working remotely in decentralised, flexi spaces. She refers to CO² emissions in New York, which are down a dramatic 50% over the past few weeks, mostly on the back of reduced road traffic. Moreover, climate website Carbon Brief suggests that the shutdown at the height of the pandemic in China resulted in a 25% drop in energy use and emissions over a two-week period.
However, co-working office developers and operators will have to rethink the design of their interiors and use of space to reduce tenant density and meet social distancing requirements.
Paul Keursten, co-founder and CEO of Workshop 17 — JSE-listed Growthpoint Properties’ co-working joint venture — says the company has already redesigned the open areas and shared workspaces at its eight locations across Gauteng and Cape Town to adhere to new safety and health considerations.
"Our shared workspaces now allow for a minimum 1.5m radius of space between people. Members sign in on arrival to a specific desk via QR codes. This reduces movement and thus the health risk, and enables tracing in the event that someone turns out to be Covid-19 positive," says Keursten.
The company has also designed transparent screens, which will be fitted to desks in shared spaces, and other items such as disposable paper work mats to protect surfaces.
The next step is to expand virtual work platforms. Keursten says the focus will shift increasingly to flexible offerings that provide an interchangeable mix of physical and virtual spaces and functionalities. So the office of the future will no longer be a specific space in one building, but a combination of physical spaces accompanied by a set of virtual tools that enable online meetings, planning and collaboration.
"These can include a mix of coffee shops, homes, co-working spaces and corporate offices," he says.
Industry players say another upshot of the pandemic is that the office densification trend could reverse. Over the past decade or so corporates steadily reduced their space requirements per employee, as private, enclosed cubicles made way for open-plan offices.
David Rice, COO of Redefine Properties, one of SA’s largest office landlords, says the densification trend of the past few years halved the average space-per-person allocation to about 5m²-6m². He expects that to increase to at least 7m²-8m² after the lockdown.
Though it’s too early to say how this will affect the overall demand for office space, Rice expects increased personal space to be offset by lower staff numbers as more people work from home.
The changes wrought by the pandemic will not only necessitate a tweaking of office layout and space allocations. They will also take the "smart" building movement to an entirely new level, says Marco Macagnano, the real estate expert who led the team that designed and configured Deloitte SA’s new headquarters in the Waterfall precinct, Midrand.
The 42,500m² building, which houses the auditing firm’s 3,700-odd employees — they previously worked in 10 different offices scattered across Joburg and Pretoria — has earned the prestigious LEED (Leadership in Energy & Environmental Design) silver rating from the Green Building Council of SA.
The building is divided into various types of areas to support different ways of working: board and meeting rooms; smaller, focused work hubs; collaboration zones; pause areas; and open-plan office spaces supporting hot-desking.
Macagnano has incorporated smart building concepts such as "spatial analytics" and "occupation detection technology" in the design and construction, which he says will allow staff to adapt quickly to social distancing requirements after the lockdown period. The building’s software can also help teams find the optimal place to work together and help reduce energy consumption by regulating lighting and air conditioning in spaces that are not in use.
By harnessing the power of artificial intelligence, the building has the ability to self-diagnose possible problems.
Macagnano explains: "The building is fitted with internal occupancy sensors that can detect when certain areas are being too densely populated, and issue a risk warning to staff to maintain safe distances. Active desk management also allows the building to sense how close people are sitting to one another."
However, he acknowledges that, while the adoption of smart building technology may allow many companies a smooth transition back to work, remote working is likely to become the new normal for many. To this end, he expects companies to become more willing to engage with employees to find solutions that best fit their needs.
"The focus will be increasingly on flexibility, in terms of both how and where people work," says Macagnano.
"I see a future where a worker could require collaboration in the morning, focus at lunch, and remote working in the afternoon."