How will the COVID-19 pandemic impact our demand for office and industrial space in the future?
Published April 20, 2020
The national office vacancy rate for all classes continued to decline from 10.3% in Q1 2019 to 9.5% in Q1 2020, and dipped slightly from 9.6% in the previous quarter. The national industrial availability rate for existing supply increased slightly to 2.9% in Q1 2020 from 2.7% in the previous quarter, and from 2.8% in the same quarter last year.
The spread of COVID-19 has drastically changed economic conditions, which has led to several market disruptions worldwide, such as a rapid increase in unemployment rates, layoffs and a significant decrease in retail spending. With social distancing measures in place, a chain of events will likely impact the real estate sector, including how we utilize space and the likely growth in demand for services such as online grocery shopping. The COVID-19 pandemic has, in many ways, fundamentally altered the way we interact with each other and the way many businesses operate. How will this affect the nature of workspaces and our demand for space in the future? The following are highlights of a few of the changes we expect to see.
Over the last twenty years, we have seen the average square foot per employee shrink with smaller private offices, open-concept cubicles, agile/flexible workspaces and work-from-home options. In more recent years, however, the shift in focus towards employee health, wellness and productivity has started to push back against smaller, crowded workspaces.
Prior to the pandemic, many companies – tech firms in particular – were already utilizing digital technology and applications, such as workplace collaboration tools and video conferencing platforms, to provide flexibility and mobility to employees, leaving physical office spaces for more collaborative purposes. With the arrival of COVID-19, most businesses have had to swiftly adapt to sudden changes in the workplace. Social distancing measures, the sudden shift from in-person to virtual meetings, and new terms like the “six-foot-office” have drastically changed what we consider a normal working environment.
The impacts of COVID-19 will likely have lasting effects on how we work, where we work, as well as the type of work we do. How long this shift will take to play out is uncertain, but there will undoubtedly be a shift, and it may be one in which employee health, safety and comfort take precedence. Other changes may include a permanent shift away from in-office jobs to remote work, as well as a significant reduction in the time actually spent in the office. The rise in automation may see many jobs become obsolete, and some companies may also consider entirely readjusting their overall space requirements as a way to reduce costs, while ramping up their technological support capacity to meet employee needs and maintain productivity.
The story for the industrial market has always revolved around the growth in e-commerce. This trend will continue, but at an accelerated pace, especially as it pertains to online grocery shopping. Pre-pandemic, many grocery stores had already begun to introduce delivery services or click-and-collect options such as Instacart, Grocery Gateway and Voilà, yet grocery deliveries were once a non-essential service. As a result of pandemic containment measures and the ensuing growth in demand for delivery services, grocery-related business has experienced a boom.
In addition to the overwhelming growth in restaurant meal and liquor delivery due to the closure of in-dining services, restaurants have also begun to expand their service offerings to include grocery delivery. As a result, the demand for cold storage facilities and larger warehouses will likely increase. Customer expectations have always been focused on just-in-time deliveries, and as current health concerns continue to push consumers away from in-store shopping towards e-commerce, it is likely that warehouse space requirements will expand in order to relieve some of the pressure resulting from the growth in inventory reserve and consumer demand.