Office builders face a new dilemma after Covid-19

The widespread coronavirus pandemic has emptied offices across the world as millions of people work from home, leaving property developers wondering whether to quit their business or to build more and larger office spaces for social distancing requirements.

In an unprecedented change in the way people live and work, coronavirus-induced lockdowns have turned many offices into empty spaces – reducing the values of the once prime real assets while making the investment a heavy gamble.

Thanks to faster internet connections, working from home is now feasible. Indeed, going by recent assertions by companies such as Twitter, Morgan Stanley, Barclays, and Fujitsu, millions of workers toiling at home because of Covid-19 will never go back to office.

“We expect a significant slowdown in the absorption of office space in the second quarter of 2020 as organisations focus on handling the Covid-19 pandemic,” Knight Frank Kenya said in a recent property market update.

“This has already been manifested in the form of fewer office enquiries and postponement of key business decisions, causing a delay on imminent lease start dates.”

However, prime rents have remained unchanged at Sh130 per sq. ft/month – a stagnation largely attributed to the oversupply of commercial space in some locations.

Knight Frank expects the average office space to reduce as more people work remotely.

“The average office space per person is 15sqm. This was already reducing before covid as more people started working from home or using office space more creatively.

“We will continue to see a reduction in this but it won’t be immediate,” said Knight Frank Kenya managing director Ben Woodhams.

While no local employer has openly announced plans to move workers to permanent work-from-home arrangements, foreign companies are increasingly announcing such strategies.

On Monday, Japanese technology company Fujitsu said its 80,000 employees in Japan would work flexible hours, and work-from-home would be standard wherever possible.

UK-based Bishopsgate Financial has closed its offices in London. Its CEO Mike Hampson says he has realised that staff only needs to meet a couple of times a month to operate.

“As we were all pushed to work on new tools, we found that remote working worked really well for us. We’ll meet on a bi-weekly basis, but we don’t need an office for that,” he said.

READ: Wealthy developers shrug off Nairobi office glut anxieties

Dan Bailey, the proprietor of Wikilawn, which operates a website where homeowners can find lawn care, said in an interview with AFP that he gave up his Austin, Texas, office a month after his workers began operating from home.  

“I only have a few who have any interest in going back to the office, and I can’t justify the costs to keep them there,” Bailey said, adding that he will not renew his lease in October.

The sudden emptying of offices marks a departure from the commercial real estate market that has been booming in global cities – including Nairobi – in recent years.

“The outlook isn’t good. There are going to be defaults and losses,” Matt Anderson, managing director of Trepp, a data and research firm, told AFP.

But Glenn Mueller, a real estate professor at the University of Denver, expects that even as some companies leave others will need more space to comply with social distancing requirements. The net effect, he says, will be to require the same amount of space.

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