Covid-19 lockdown didn’t change the direction of the rising long-term Work from Home (WFH) trend. It merely accelerated it, and likely sustained the long-term decline in the size of the office market relative to the entire property market of South Africa, according to property insights by FNB Commercial Property Finance.
“But it may change some office design trends significantly. While ‘collaborative space’ is a buzzword, I believe that ‘private space’ in office buildings is what is sorely lacking,” said John Loos, property sector strategist at FNB Commercial Property Finance.
The office property sector has been a regular underperformer in the commercial property sector, he said.
Loos said the shift to open plan offices, away from the old-fashioned closed offices that many employees had in earlier decades, enabled space-saving, as employers could greatly increase the density of employee workspace.
“I believe that cost saving was probably more of a consideration in the move to open plan than were employee productivity considerations.”
In addition, information and communication technological advances greatly reduced the amount of space required for document storage, while also increasing the mobility of employees. This led to a rise in the portion of the office workforce that could work remotely full time or some of the time, said FNB.
Old habits and “comfort zones” were arguably the only thing preventing far more people from fully embracing the technologies available for remote work and communication, in order to improve their daily productivity through, in many cases, being able to cut wasteful commuting time and finance costs, said Loos.
He said that Covid-19 lockdowns, therefore, did not introduce a new trend here. They merely sped a long-term trend up, causing more pressure for the already pressured office sector.
The lockdowns forced the late adopters to give remote work a try, and many found out just how much virtual business interactions could improve productivity by eliminating wasteful commuting, not only the daily commute to and from the office, but equally importantly those frequent time-consuming trips for many of us to meetings somewhere across the city.
In addition, for those of us who had wanted to use greater remote interaction long before Covid-19, the lockdown period made it acceptable practice in many companies, said Loos.
“My expectation was therefore that, following the easing and ultimately the end, of lockdowns, many employees would resume the commute to the office, but that the level of office attendance would not go back to the levels of 2019 pre-Covid 19 days.
“Then, from the new post-lockdown ‘normal’ level, the gradual long-term trend towards greater levels of remote work would resume, on the assumption that the enabling technologies will continue their long-term improvements.
“This appears to be what is transpiring. Offices are fully opened up, but office attendance rates don’t appear to have reached the levels they were at prior to Covid-19. And I’m guessing that current office attendance levels are more-or-less where commuting levels will settle.”
Office market is correcting in 3 broad ways
The office market correction, in response to all these pressures on office demand, would then take place in various ways.
- Rental decline
Firstly, rentals would decline. This has been taking place to a significant degree. Rode rental data, estimating the average National A-Grade De-Centralised office Rental/Square Metre, has declined by -7.6% in actual terms on the 1st quarter 2020 level, and a very significant -16.4% in “real” terms when adjusted for GDP inflation.
- Decline in the relative size of the office market
The second part of the correction would be in a decline in pace of supply of new office space coming to the market along with reducing existing stock, said Loos.
“This appears to be happening too. A portion of older existing office space is being repurposed into residential property, while StatsSA building stats point to very low levels of office space planning and completions of late.”
For the 12 months to May 2022, the square meterage of office space plans passed was down 69.6% on the 12 months to May 2019.
The office sector is likely to continue its long-term trend towards making up a smaller portion of the total property stock of South Africa, said Loos.
- Building design set to change as landlords compete with the attractions of home
The third manner in which the office market is likely to adjust is in terms of building design, and here things get more complex, said Loos. The market has to compete with the home in the case of those jobs that can be done from either place.
One key selling point to employees, regarding the benefits of the office, is collaboration, said Loos. “Employees need to see each other in person at least a portion of the time, so the story goes, and to be sure, collaboration at least some of the time is important in many jobs.”
Collaboration has thus become a buzzword, and with it the term ‘collaborative space’, he said.
“But perhaps a neglected part of the whole equation is the work part. Collaboration and employee interaction is necessary some of the time, but much of the time for many employees is about focusing on their work individually, preferably with no distraction,” said Loos.
“Distraction and disruption for some employees working from home can be an issue. But what then of the open plan office? Noise and disruption are often abundant there too.
“For many years, collaborative space has been in abundance in many office buildings, with it meeting rooms, coffee shops or pause areas. The design may need improving, but I have rarely seen a shortage of collaborative space.”
Loos pointed to a shortage of private space, where people can work without distraction – a necessity in many jobs.
“There was a reason for old office buildings many years ago having offices that employees could go into and close the door.
“That necessity for private space has suddenly skyrocketed due to the ‘zoomification’ of many of our daily business interactions. Even for those back in their offices daily, many will interact with others remotely in order to save on wasteful traveling time and money,” he said.
Open plan offices where colleagues in close proximity were talking on phones or to each other were disruptive enough for those nearby. Now the often confidential video conferences get added to the mix, he added.
Enter the “telephone booth” office, the small soundproof cubicle for quiet work. “The few that exist in the open plan office buildings appear very popular, and it would appear that far more of them are needed now,” Loos said.
“So perhaps if there is one trend change coming out of all of this, it could be a partial shift back away from the open plan office, towards one with a significant increase in private space.”
Collaborative space has been a buzzword in the Covid-19 period, but it has been private space that is arguably sorely lacking, the property expert said.
What to do with a far longer weekly “off-peak” period?
Finally, a key issue for the office sector is what to do with a far longer “off-peak attendance period”. “There has been a visible change towards a far shorter weekly peak office attendance period. In days gone by, the peak attendance period was 5 weekdays,” said Loos.
“Now it is arguably three days – Tuesday, Wednesday, and Thursday – at best, and even Thursday can be quieter. Four out of seven days at least have very low attendance rates in many office buildings.
“I expect to see far more creative ways of utilizing that downtime for other commercial activities, possibly by a different tenant altogether. Because right now it would appear a rather costly exercise by many corporates to hold office space that is un-utilized for the bigger part of the week,” he said.
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