Winners & Losers
The global Covid-19 pandemic, which has affected all our lives, has also affected all the world’s businesses. Some are massively expanding and growing with their demand for office space increasing. Microsoft, Google, and Amazon are some of the superstar companies undergoing massive expansions in the midst of the pandemic, gobbling up millions of square feet of office space and warehouse/distribution space. In May, Microsoft signed a 523,000 square foot lease in the newly under-construction Atlantic Yards office building in West Midtown, Atlanta. In August, Google leased another 300,000 additional square feet at 1105 Peachtree Street in Midtown, Atlanta (Link to Atlanta Business Chronicle article). This month as well, Amazon defied the remote working trend by spending $1.4 billion to add 905,000 square feet of office space in six cities (Link to Bisnow article). If you are like me, you have become increasingly comfortable with daily Amazon home deliveries and are tied to your notebook computers using Microsoft products, so it is easy to understand how these companies are experiencing a boom in this economy!
On the other hand, many other businesses are shrinking or have completely disappeared. Online retailers are flourishing while brick and mortar retailers are struggling or failing. In February, Macy’s IT Department signed a 108,000 square feet office lease in the new T-3 West Midtown Atlanta office building, and then in May announced it would not be occupying the space, but rather subleasing it (Link to Atlanta Biz Journals article). Still, other companies, like Bank of America, have notified employees that no one should come into the office until after Labor Day. Truist Bank has told employees not to plan to come into the office until January 2021. Google recently announced it is extending remote work until at least Summer 2021 (Link to Wall Street Journal article).
A Focus on the Co-Working Space
The co-working office space world, as recently popularized by WeWork and the much larger and more substantial company IWG PLC (Regus, Spaces), along with the many smaller operators, have been particularly hard hit. Their business model is to lease office space long-term and then sublease it out to individuals and small business users on a monthly or annual basis. Most of these small users have dropped out of their leases because they are working from home and do not want to come into a shared office with other people they do not know, who may not be as careful about Covid-19.
These shared office companies are in a temporary crisis, just like the hotel business, which leases rooms by the day; but as soon as medication or a vaccine is available for Covid-19 and people feel safe again, these shared office companies will rebound fast, just like hotels will. That is because shared office space does not require a 5-10 year commitment. As a matter of fact, IWG has already seen a rebound in occupancy in their co-working offices in East Asia, and the suburban America markets are now performing well. Co-working spaces in the major cities are still depressed and closing under-performing locations (Link to Wall Street Journal article). Curiously, because they know the rebound will be fast, some co-working companies who are closing their locations are, at the same time, negotiating new leases in more desirable locations and terms for the future.
Reluctant to Return to the Office?
As many of us have become much more proficient working from home on our computers, some have suggested that the world will be reluctant go back to the office. However, what we at the Allen Morris Company are hearing and seeing from our corporate tenants is that their employees are anxious to get back to the office and away from the distractions and interruptions at home. People are weary of the long hours working remotely in front of computer screens on Zoom meetings where human interactions are stilted and inhibited, and creative interaction is restricted. We believe many will work more frequently from home and on the road as people travel, now that the American workforce is more competent at working remotely, and there are some jobs that do lend themselves to remote work and data entry.
Yet, we have seen, as never before, how human beings are inherently social and crave social connections and interactions both personally and productively. For that reason, I believe that people will flood back into their offices as soon as it is safe, and companies will desire the increased productivity, creativity, and innovation that comes from close, informal communications and casual interactions in the office.
Have we forgotten how corporate America and small businesses alike were reconfiguring their offices spaces to include intentional collaboration areas less than a year ago prior to the pandemic? I have toured some of the most creative, forward-thinking companies whose concepts have evolved to encourage collaboration and informal communication in the lounges, living rooms, game rooms, gyms and cafes, outdoor terraces and gardens of their office buildings, because it increases productivity and creativity.
In the drudgery of the hours we spend in front of the computer screen in meetings, we have forgotten that our offices were evolving to become places of fun and joyful collaboration. In our own offices, we created a casual living room we dubbed “inspiration point” as a place for employees to put up their feet, ease the tension of the day, relax, and think through business solutions creatively.
Mental health professionals across the board are warning the country of huge spikes in depression, anxiety, domestic conflicts, and even suicides during the isolation created by this pandemic – reminding us, once again, that we are social creatures. At the beginning, people were excited at the novelty of working from home, but now the reality has set in causing pandemic fatigue.
Further, the COVID-19 pandemic poses heightened cybersecurity and data privacy risks for businesses. With the rapid deployment of remote-working solutions, malicious actors already are attempting to exploit weaknesses due to reduced IT staffing, the use of personal devices, and insecure public and home networks.
Recent studies on the effects Covid-19 had on the security of remote working have documented over 90% of executives stating that working from home has led to a rise in attacks. In addition, 85% of chief information officers (CIOs) and chief technology officers (CTOs) indicated that their workforce had not been properly equipped to work from home, with 28% citing “severe and significant gaps” in security.
What We Really Crave
I believe the future of office space will show an emphasis on restoring the productivity, social interaction, and joy of work, which will be most especially appreciated in “creative office buildings” and “creative spaces”. The new genre of “creative offices” includes outdoor terraces, fresh air, and a full array of food and beverage services within or surrounding where people can be an elevator ride away from their coffee in the morning, a glass of wine in the evening, or a gathering with friends and colleagues. This will bring people back into offices with a refreshed gratitude for the chance to be productive and social together. The challenge for companies and employers will be to provide these enhanced social environments, which their employees will crave and appreciate more than ever in the new future ahead.
Because I am confident that people and companies have only paused their office leasing plans waiting to see when they can get back to work safely and what their needs will be, office leasing and expansion will come back with a roar. And the offices that will lease the fastest are those that are healthy and innovative creative spaces that provide social experiences, fresh air, indoor-outdoor gathering and meeting spaces with nearby amenities. That is what we built in Alhambra Towers in Coral Gables and are intentionally designing in our new Star Metals Offices building in Atlanta, and the new Creative Village office building in Orlando.
Although I do not know when it will be safe for everyone to come back to their offices, I do know it will be a happy day when we can all work together again!
Miami-Dade Office Market Survey
As consulting brokers, advising office tenants and landlords on their current leases and future office moves, we constantly survey and monitor the office market. Following, please find our latest “snapshot” of the Miami-Dade office markets. If you have any questions or would like some free advice, please feel free to call or email one of our consulting brokers, Maricarmen Cabrera (mobile: 786.378.9638 | email: MCabrera@allenmorris.com) for a friendly conversation during challenging times!
Click Here to access the Q2 2020 Miami-Dade County Office Market Report.