In this video, Tim Gibson, Co-head of Global Property Equities shares his views on ‘the new normal’ practice of working from home as well as how offices will need to adapt to suit the changing work environment.
- While the overall impact on office markets is likely to be negative, there is an argument that social distancing guidelines may mean more office space per employee could be required.
- Businesses will need to adjust in terms of allowing people to work from home, attracting and retaining new talent, and landlords will need to be more flexible to meet tenants’ needs.
- Offices will still be relevant as it is a place where people come together to work, to solve problems and to create companies and cultures.
Impact of working from home on the office market
Hi, my name's Tim Gibson from the Global Property Equities Team at Janus Henderson Investors. What I would like to do in this short video is address one of the key questions that we've been getting from investors on office markets; ie, what impact of working from home have on them. I know many of you are watching this video are probably doing so from home, what started off as a short trial period has turned into something more significant in terms of our day-to-day lives as we combine home and work together. In terms of the overall impact that we feel will happen on the office market, our sense is that it will undoubtedly be negative. The key question is how negative will it be? I suppose to provide some balance to the discussion and play devil's advocate for a second, what are the arguments for the office market returning to something that resembles normality? In our conversation with office REITs (real estate investment trusts) over the last number of months, they have not noted a significant change in demand as yet. Indeed one of the key arguments that they have to be more positive about the office markets is to do with social distancing and that companies as a result of social distancing, could actually require more, not less office space.
Chapter 2: Offices still serve a purpose
But I guess in terms of this working from home experiment what it has shown us, is that it can clearly work. I think as a proof of concept it is beyond doubt, and even though I guess we all agree as the question is that you can work from home, I guess do you want to work from home? Certainly, some people have acquired a taste for it. A recent Gallup poll showed that three out of five Americans would continue to work from home if they were allowed to do so1. But I guess where do new ideas, innovation collaboration come from? How do you mentor and foster new talent. Very difficult to do that over a Zoom call. It's very difficult to do that when you're in two separate locations, trying to understand company cultures. These are the things that can really only be done I guess face-to-face, but clearly there are some jobs where people do not need to be either in the office or perhaps they need to be in the office less than they have done so before. Some people, in terms of locations are working in circumstances that are less than ideal. Whether that's from a makeshift bedroom, kitchen dining table or a corridor, we all know that this isn't the perfect situation or solution. There is a reason ultimately that a lot of us are in offices, and that’s certainly before you deal with the stress of the kids, the dog, waiting for the next Amazon delivery.
Flexibility will be key for office landlords
But I guess what are some of the impacts of working from home might have on the office market, the underlying office market itself? I think businesses are going to have to adjust, they're going to have to be more flexible. I'm assuming in terms of allowing people to work from home, in terms of attracting and retaining new talent, and landlords I think are going to have to adapt their product. Again, this is more flexibility to meet tenants’ needs and I think this will lead to a bifurcation in the market, most likely between new buildings and old buildings. And new buildings where densification requirements are going to be important. The number of people that you can move around a building whether it's from a lift perspective, the services and amenities perspective, these are things that are going to be important in the future. But clearly it remains to be seen how long it will remain important for. But ultimately, I think as I mentioned these human considerations do matter. I think a recent study between LinkedIn and USA Today showed that 50 percent of people surveyed talked about feeling lonely in certain periods as well2. So again I think that this is going to come down to if it is possible even to work from home, when you are allowed to work from home. Do people really want to work from home? So I think offices are probably more than the sum of the parts. I think they are where people come together to work together to solve problems, and to create companies and cultures and so on and so forth. So I guess in conclusion, returning to the office, I think is going to be a very different place and experience to the one that we all left. I think it's also safe to assume that fewer people will return to the office. Obviously we don't know the quantity or quantum of that. I think that some people will choose and will want to work from home. It will work for them. But also I think a majority of people will return to work. Because working with colleagues, working with friends, I think that it's about more than simply the job itself.
1. Source: Gallup, 3 April 2020.
2. Source: USA Today, 11 May 2020.
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