Tenants struggle to build a bridge to somewhere

This is an excerpt from an article. To view full article, click here.

In the span of roughly three months, working from home has become a critical extension of corporate America that is, perhaps indefinitely, transforming the way we look at the office. 

Top of mind for most companies at the moment is how to cost-effectively transition employees back from the safety and security of their homes without jeopardizing their health and mental well-being at the office. Such moves require a bevy of investments in protective gear, signage and repurposed space that, for a growing number of companies, inconveniently corresponds with mounting strains on sales and revenue.

But longer-term — and potentially more costly — structural changes also are at play as employers grapple with how best to utilize office space in a post-Covid-19 world. The shifts are expected to alter the economics of doing business and how employers engage with coworkers at all levels of the corporate hierarchy. That bodes for big changes in how millions of square feet of commercial office space are utilized, not to mention the ripple effects such changes will have on central business districts, real estate experts agree.

“I think everyone’s recognized that what we’re experiencing right now is not just a blip on the radar screen, this is kind of a marked point in history,” said Damla Gerhart, senior managing director of workplace in the Chicago office of CBRE. “Companies are going to have to think about how they provision and operate their office spaces. … We might experience something like this again in our lifetime, and companies are saying maybe next time around we’ll be a bit more prepared for it.”

Many of the preparations and precautions will fall at the doorsteps of landlords, particularly when it comes to common areas and high-traffic spaces such as elevators and stairwells. Estimating the costs and resources required to accommodate tenants already is proving a challenge, as most employers lack clarity on when and to what degree they plan to get back to the office. As to how tenants will then equip — or demand their landlords equip — spaces is anyone’s guess, real estate experts say.

In more congested parts of the country, such as the Washington, D.C., region, a majority of employers don’t plan to bring all their workers back until after the start of new year, and some see no clear path toward returning to the occupancy levels they maintained before the outbreak. Continuing to pay rent on space designed for 100 people when only 50 or fewer are coming in on a regular basis might seem wasteful, and that’s something some tenants will look to adjust.

This is no small matter; for the typical office tenant, Class A rent tends to hover around $50 per square foot in most cities, ranging up to as much as $70 and $80 per square foot in high-demand business clusters, according to a sampling of 50 major metros compiled by JLL.

Yet while the nation is still living in the age of the coronavirus, shedding excess space or making other long-term changes isn’t a prospect many are willing to commit to ... yet. The indecision has broad and potentially significant financial implications for tenants and landlords alike.

In a recent survey by CoreNet Global of occupiers of real estate from late May to mid-June, 38% of respondents said it will be a year or more before their companies will have employees in the office at the same levels as before the pandemic. Some 47% said they planned to reconfigure office layouts to reflect new workplace changes.

The signals to landlords were more ominous in another survey by Alexandria, Virginia-based Brightline Strategies, which found that 51% of real estate decision-makers said they are likely to reassess their space needs based on business impacts from the coronavirus, and some 60% would reduce their footprints in their next lease.

Tom Fulcher, vice chairman and co-regional manager of the D.C. office of tenant brokerage Savills, said shedding real estate is a tantalizing prospect for many struggling businesses. Likewise, he said the economy’s uncertainty is countering that pull, as many tenants are reluctant to make changes with long-term consequences.

“I think people aren’t ready to make that call yet,” Fulcher said. “I do think that’s coming. I think real estate’s too expensive not to try to figure out a way to do this.”

THE SHORT-TERM FIX

Reducing fear with protective gear

As businesses plot a return to the office, uncertainty around timing, spacing and the incremental costs of keeping workers safe has turned what many thought would be a simple proposition into a complicated affair.

Tech's tall order

Employers made immediate technology upgrades to accommodate an all-remote model, however longer-term investments — from monitors to furniture to more nimble and secure IT systems — could cost around $500 per employee, per Cushman & Wakefield.

Signs of the times

Signs on doors, walls and floors to encourage the use of masks and hand sanitizers, limit capacity in common areas, and direct foot traffic to encourage social distancing can cost between $2,000 and $4,000 per installation, according to Mission Viejo, California-based printing and marketing services company Sir Speedy.

Clean sweep

Comprehensive cleaning can cost up to 75 cents per square foot, or $7,500 for a 10,000-square-foot office, to address a spectrum of pathogens, per Core Team Inc. of Bethesda, Maryland. More routine cleanings can cost closer to 25 cents per square foot and trend down to as little as 10 cents per square foot depending on the office size.

Clean hands, clean spaces

Hand-cleansing resources can vary from as little as $290 for a case of 250 1-ounce bottles of hand sanitizer up to $816 for an automated VersaClenz Hygiene Series liquid-dispensing stand, per Lake Forest, Illinois-based W. W. Grainger Inc. Cleansing wipes can be as low as $6 for a Clorox three-pack at major retailers up to $170 for packs of 100, per Custom Ink.

Hot topic

Infrared thermometers run up to $90 apiece, per office supplier W.B. Mason of Brockton, Massachusetts.

Breathing easier

Masks cost around $350 for a 100-pack, per Custom Ink, while plexiglass for workstations and reception desks can run in the hundreds of dollars per installation, per Green Bay, Wisconsin-based KI Furniture.

View Full Article