After the pandemic: Contemplating the future of central office buildings

Abstract

The COVID-19 pandemic has dramatically changed the nature of office work. The main driver is remote work, a concept theorised for years, but upon its arrival has become a significant disruptor of commercial real estate. Buildings and the city cores they occupy in large urban centres have hollowed out. Large organisations, still tied to long-term leases, try shedding space to adapt. As they do, cities reliant on property tax revenues find themselves at odds with institutional landlords over asset values. The upheavals unfolding in the industry, particularly in the office sector, are enough for prominent media organisations to declare downtown office buildings dead. But are they? By analysing quantitative and qualitative data and evidence from high-profile organisations, it becomes apparent that although building occupancy may not be what it was prior to the pandemic, indicators point to a macroeconomic reset where the steady rise in occupancy will establish a new equilibrium, probably not too different from what it looked like pre-pandemic. Along the way, a new industry metric, the Idle Space Index (ISI) is introduced to define an interrelationship between occupancy and vacancy rates, which can greatly assist strategic space planning. In the medium term, chaos will reign supreme, as corporate real estate (CRE) executives try to engage in longer-term planning. Building assessments will remain a contentious issue until that new equilibrium is established, but for an industry described as being on its last legs, it seems there is plenty of life left.