COVID-19 Will Fuel Space Rationalization Strategies Rather Than An Office Apocalypse
As many offices remain closed for a third month amidst the COVID-19 pandemic, businesses globally are rethinking how much office space they really need. Recent news announcements show firms are already drastically reducing their office footprint. OpenText software in Canada will close 50% of its offices and transition 2,000 employees to a permanent work-from-home-status. Nationwide Mutual Insurance Company will shut four US offices with 4,000 employees working from home permanently. The BBC announced it will close 20 regional offices citing cost-cutting and the success of remote working technologies. These announcements have led market commentators to speculate whether COVID-19 could result in the extinction of the office.
COVID-19 will not spell the end for offices; it will instead accelerate space reduction trends that were already gathering pace. Before COVID-19, firms were reducing their office footprint given that real estate costs firms $5,000 to $20,000 per workstation per year depending on location. In the aftermath of the last recession, firms also bolstered space efficiency efforts. This 2010 article shows that firms including ADC Telecommunications, Best Buy and MoneyGram sublet their city-centre office space for cost savings.
The major difference today is that remote working is creating the possibility for firms to go much further with space rationalization. Before COVID-19, firms would often target a 20% reduction in their office footprint by making workplaces denser and more agile. Today, firms are looking to use home working to reduce their footprint by 50%. For example, TCS is aiming for 75% of its workforce to work from home by 2025, and this is driving major space reduction opportunities.
As space rationalization programmes continue to accelerate, corporate real estate managers must refresh their workplace strategies. They will need to be ready to identify the more appropriate offices to downsize or dispose of based on an analysis of building occupancy, operating costs, and location. Firms shedding most of their office space will need to develop an entirely new vision for the office as a strategic hub that underpins staff meetings and collaboration.
For further insights into how commercial real estate is changing now and in the future, read our latest report: COVID-19: Long-term Implications For Corporate Real Estate.