March 25, 2020
The magnitude of the global coronavirus pandemic has only just begun to be felt, not just in terms of human lives but in the countless ways it will impact the economy.
With the U.S. government approving an aid package to the tune of $2 trillion dollars this week, the severity of the COVID-19 crisis is as clear as day.
One of the most immediate consequences of the economic crunch is that many businesses — if they are operating at all — have had to transition their employees to a remote work environment.
Predicting how long the economy will remain in a suspended state is a difficult task, but uncertain road to recovery is poised to have major ramifications for commercial real estate — specifically office space.
Historically, employers have required most workers to report to offices for a variety of reasons, whether it’s ensuring productivity, building social cohesion or streamlining communication between different groups.
It might be assumed that companies will return to their offices as soon as they can. Those under current leases will be left with little choice.
In the bigger picture, it’s possible that in certain industries, valuable insights may emerge from telecommute arrangements. Perhaps certain functions can be completed just as well off-site, enabling employers to lease smaller offices and handle some tasks virtually.
Employees may push harder for companies to provide more flex-time and other opportunities to regularly work from home.
Perhaps the greatest concern will be the effects of an anticipated recession, which could result in decreased demand for office space as job growth falls even after the pandemic is contained, as Forbes pointed out this week.
"If the recession extends and deepens more than expected, then the need for new office space will be low for a while, but if it is a deep-but-short recession, then demand for new office space should resume as soon as job generation does." --Brad Hunter for Forbes
For smaller businesses hard-hit by the pandemic, this falling demand could be felt most severely by co-working spaces. Companies such as WeWork, already constrained by the market, are beginning to recognize that office space may be permanently changed by what’s unfolding. It’s too early to tell how severely the market for office space will suffer from the unfolding situation.
More than any other crisis in recent memory, the sheer scale of the problem will test the elasticity of the market in ways it has never confronted.
