For investors in real estate assets, especially office space and retail outlets, concerns are mounting as work-from-home (WFH) persists, foretelling the future of work in post-COVID pandemic economy.
For many employers and employees, there is no going back on flexible living and working, more so as the increase in work-from-home brought on by the COVID-19 pandemic has not hit productivity as hard as employers had initially feared.
Recent findings by Barclays-YouGov survey2 show that about 60 percent of employees expect to work partially or exclusively from home compared with fewer than 40 percent before the pandemic.
According to the findings, employers are twice as likely to encourage staff to spend part of their week working from home, on average expecting staff to work from home two days per week.
The implication of this, which is a major source of worry to investors in real estate space, is that office demand is now lower.
Ryan Preclaw, head of investment sciences at Barclays, estimates that demand may go down 10-20 percent if a part office/part home working week becomes the norm.
He reasons, however, that offices will remain important as gathering places for social interactions, meetings, and training, rather than the process- and task-driven spaces of the past.
Despite the demand fall, Bola Adesola, vice chairman for Africa at Stanbic IBTC Bank, encourages investment in commercial real estate, explaining that many businesses would still need offices despite work at home.
Adesola says manufacturers would need factories and warehouses while e-commerce companies would need logistics such as sorting and dispatch centres. “When we rethink the real estate sector, the starting point would be to explore the key typical drivers of the sector. These drivers are market forces, including demand, supply and pricing; economic factors and business confidence,” she notes.
The subset of these drivers, according to Adesola, weighs heavily on profit margins and they include interest rates and access to finance, unemployment and real income, government policies, infrastructure, yields on investments, population, demographics location, occupancy rates, quality of properties, etc.
But Preclaw insists that incremental office demand is likely to be lower. His reason is that a growing workforce may no longer lead to an increased need for square footage, as new employees embrace the WFH model.
At the peak of the pandemic, a series of lockdown and social distancing rules compelled many companies to ask their employees to work remotely.
Frank Okosun, CEO, Knight Frank, reveals that, as a company, they had been working remotely since the lockdown, saying, “We are going to continue working remotely. While some staff will work remotely, others will come to the office in line with government’s directives of 40 percent staff strength.”
As WFH persists, it is expected that employers will likely gravitate towards smaller, modern, and high-quality and environmentally-friendly spaces that was a trend already evident before COVID, but may now accelerate.
“In fact, some companies report that remote-working tools such as chat apps and video-conferencing have actually helped staff become more productive. For their part, many employees say they do not miss the stress and cost of the daily commute,” Preclaw says.
He notes that even though vaccination rates are rising and the need for social distancing is diminishing, both sides are keen to preserve what they see as more efficient ways of working.
“This poses new and interesting questions about where and how we’ll work and live in the years ahead,” he states, adding that the significantly increased flexibility was also likely to have wider social ramifications, including greater employee diversity, a better work-life balance and larger talent pools, as location and in-office presence become less important.
Preclaw recalls that at the early stage of the pandemic, there was speculation that office demand might shift to the suburbs, but their analysts believe those predictions were misplaced, noting that as economies reopen, urban offices are recovering at a faster pace than suburban ones.
Source: Business Day NG
