The weak economy and mass working from home has caused rising office vacancies, but two leading investment firms say the office is not dead yet. File photo: Reuters
The weak economy and mass working from home has caused rising office vacancies, but two leading investment firms say the office is not dead yet. File photo: Reuters

Office not dead yet, despite new normal of working from home

By Edward West Time of article published Jul 29, 2020

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JOHANNESBURG - The weak economy and mass working from home has caused rising office vacancies, but two leading investment firms say the office is not dead yet.

Office vacancies in South Africa were expected to continue to rise, while rentals would decrease in the short to medium term, according to research released yesterday by international real estate services group JLL.

The group, which assessed how the commercial real estate market had responded to Covid-19, said tenants would also most likely advocate shorter lease lengths.

“As new developments come to market and attract tenants away from existing stock, the risk of rising vacancies and reduced rentals remains imminent. Rosebank, Waterfall and Sandton are particularly at risk, with the highest development activity,” the report said.

However, “despite the current switch to remote mass working, the physical office will maintain its importance for facilitating interaction and collaboration and, ultimately, for employee health, well-being and productivity”, the research found.

While the demand for office space was expected to decline in response to business consolidations and a contracting economy, the use of traditional office space might vary as corporates consider their re-entry into the working environment.

Social distancing measures would mean that current office spaces might not be able to accommodate employee headcount volumes as done previously, JLL said.

Schroders head of real estate research Mark Callender said too that the need to comply with social distancing meant that companies might be unlikely to cut office space, because as soon as lockdown rules were relaxed, more office space per person might be needed.

However, this assumed that companies could afford to rent additional space and that most staff could travel safely to the office without using public transport.

“The real issue for most businesses is how many staff they can accommodate safely within their existing office. The answer varies according to the design of the building and whether floors are open plan, or cellular, but space planners estimate that most offices can probably only safely accommodate between 25-40percent of staff,” said Callender.

JLL said speculative office development was expected to dampen in the short -to-medium term, while tenant-driven, pre-let developments would become more common.

“Banks are starting to move away from expanding office portfolios, opting to rather scale down and consolidate. With the exception of discounted P-grade spaces with long lease deals and highly opportunistic deals, we anticipate that very few office transactions will take place over the short term,” JLL said.

B and sub-grade office spaces were expected to suffer most. The flexible space sector was likely to undergo significant consolidation, although, in the long turn, it would remain a key feature of office markets, JLL said.

“Some businesses will be tempted to continue with large-scale remote working after the pandemic and cut office space. But, we expect that the majority of occupiers will revert to prior working patterns, albeit more people may work one day a week at home,” Callender said.

Growthpoint Properties said in a trading statement this month the domestic office sector was the weak in the Covid-19 environment, but had “fared surprisingly well” for the group through the various lockdown levels, with its high proportion of large, listed blue-chip tenants.

BUSINESS REPORT

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