How to survive in an era of lower office space demand , higher supply and shorter leases

Abstract

The COVID-19 epidemic has brought with it dramatic changes in the commercial real estate industry. Many corporates decided to transit into hybrid working, allowing their staff to work remotely at least part of the week, which is likely to lead to lower demand for office space even in the mid and long term. This situation is exacerbated for office building landlords by the explosion in subleasing activity and is even tougher for retail space landlords, leading to a parallel increase in supply of office space. Adding to that the growing demand for higher flexibility from tenants and likely decrease in length of an average office lease, we see a perfect storm requiring office building landlords to take serious actions to remain relevant and succeed in the new market reality. Improving the safety of their buildings and perception of safety via better direct communication with building’s end users, providing more robust services and utilising technology to streamline operations and to enable more flexibility will be vital to landlords’ and asset managers’ success in the coming years. The likely increase in vacancy rates will not hit all office buildings equally; there will be winners and losers in the new reality. This situation can also become a catalyst for the whole industry to move from being a cost centre and become a value provider for tenants, enabling them to drive talent attraction and retention while keeping their workforce safe and informed.