A recently released report by REIS Real Estate Solutions by Moody’s Analytics suggests that the COVID-19 pandemic will prompt some companies to “reimagine” their office holdings and decrease, and even in some cases significantly reduce, their office space portfolios.
In the report entitled “COVID-19 Will Force the Office Sector to Evolve (Further)” the report notes that Morgan Stanley for example has stated that it “could operate with much less real estate” by allowing some of its 80,000 workers to employ a remote-work model.
“We’ve proven we can operate with no footprint,” Morgan Stanley CEO James Gorman told Bloomberg News. “Can I see a future where part of every week, certainly part of every month a lot of our employees will be at home? Absolutely.”
Another firm that could reduce its office presence in major cities in the U.S. is Google, which had been expanding its presence in New York City prior to the Coronavirus pandemic.
However, the report cites a study completed in April 2019 that worker productivity at Google was the same whether or not teams worked at home or at the office. As of April 2020, all Google employees were working from home, the report states. “If Google decided to shrink its office footprint in the future, distress in specific office markets will be concentrated in markets like the Bay Area and San Francisco proper, New York, Atlanta and Los Angeles,” the report noted.
The report also noted that while companies in major cities will probably not relocate their operations to less populated areas like North Dakota, suburban locations near major cities, like New York City, for example, could see some activity.
The Moody’s Analytics report notes that corporate moveouts to the suburbs not too far from their original Central Business District space “minimizes disruptions like having to deal with employee relocation costs (if the choice of suburban space is less than 25 miles away from their original CBD location) and may translate to savings in rental costs given that suburban office space tends to be cheaper than CBD options.”
“For many years, suburban office space fell out of favor because of the resurgence of US cities,” said Ryan Severino, chief economist at Jones Lang LaSalle. “Is this COVID-19 crisis going to spur renewed interest in suburban markets, as households and employees move out of cities? Time will tell.”
The report also states that the evolutionary change in the office sector is being caused by demographic shifts, economic development and technological changes. That evolution will be “kicked into high gear by the COVID-19 pandemic. One trend may reverse (suburban office may come back into favor versus CBDs), but the decline in the intensity of office space usage may accelerate significantly,” the report’s authors note.
To view the full report, go to: https://www.moodysanalytics.com/-/media/whitepaper/2020/ma-reis_covid-19_will_force_the_office_sector_to_evolve_further_2020-05-04.pdf
