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The Fate of Offices: A Long-Term Coronavirus Effect No One is Discussing

How a drastic increase of working from home over pandemic conditions may change the rental landscape in California

By Evan Symon, March 13, 2020 8:13 pm

With more and more Californians being ordered to work from home for the next several weeks, a potential long term effect on office rentals and telework could be felt.

Telework during the COVID-19 outbreak

While the economic impact worldwide is currently estimated at $2.7 trillion, many Californian companies are staving off off being part of such a loss by having employees work from home. There has already been a huge uptick statewide, with large companies such as Google having employees telework from home. While many places of business, most notably retailers and governmental offices, are staying open to some capacity and others closing indefinitely leaving employees wondering if they will get paid over the next several weeks, telework has been the solution for companies that can manage completely online work and communications.

“We’ve been flooded with requests,” said Kimberly Sherman, a telework consultant and adviser. “People want to know everything from how to set up calls with multiple people to how to schedule out work during the day. These aren’t hard things, but this threw many people for a loop.”

“It usually calms down after a few days, but with the number of people and companies wanting this much help, there’s only so many people I can help.”

Following a longer trend of working from home

Even before the Coronavirus work-from-home options have become much popular. Companies looking to save money on costs following the Great Recession had found that having an employee work from home could save as much as $11,000 annually per employee. And it took off. Between 2005 and 2015, telework in the US shot up 115%. More recent figures have shown even higher percentages.

“It turned out to be very beneficial,” explained Sherman. “Employees, especially those with younger children or pets, found working from home a lot more enjoyable. And because minimum wages and healthcare costs have been going higher and higher, not having a physical office and other associated savings bridged that gap.”

But a lot of businesses that could easily convert resisted it. Many businesses experimented with going completely telework in the mid-2010’s, but some converted back to the office model after employees found that working remotely delayed larger group-oriented projects and caused overall production to go down.

“It’s not something for everyone, and a lot of people rely on the structure of an office to remain motivated or need that human face-to-face contact,” said Sherman.

“Many were also resistant. Many businesses didn’t understand services like Skype for video conferences, or simply refused to change with the times.”

Telework and the decline of office popularity

Nonetheless, telework has been proven to be more and more popular, especially in California. In Los Angeles alone, many companies and businesses have decentralized from offices in recent years, having employees either work from home or go with cheaper alternatives like WeWork.

Since the mid-2010’s office vacancy rates in Southern California have been skyrocketing. At the end of 2018 vacancy rates in LA were at roughly 12%. Only a year later it had jumped to 16%.

“I wouldn’t call it a problem just yet,” stressed landlord Mel Garcia, who owns two small office buildings in San Diego County. “But I have had tenants move out in recent years because they decided to have their company become all from home and online.”

“I had one company move out for a month as a trial to see if they could all work from home. It was about a 20-man company. I didn’t think they would do it because I knew them and knew how social they were with each other, but it actually worked quite well and left when the lease was up.”

A possible post-coronavirus office exodus

Office buildings in Oakland, which may see a larger vacancy percentage post-coronavirus. (OAK)

With the COVID-19 coronavirus now making many companies work from home, including many who were against such an idea even 5 years ago, it could have a huge effect.

“Companies will see how they can survive and thrive without an office,” explained Sherman. “After the initial shock and getting over the usual week or two of missing chatting with co-workers each day, they’re going to find the pluses.

This happens a lot. They miss co-workers or say they ‘need’ that human contact, but then they used services like Slack or Facetime or Skype so they’re always in touch. We’ve come a long way in telecommuting in the last 5 years, and the sheer number of businesses going that way is proof.

The coronavirus is going to give employers several weeks to see these benefits, and is going to give employees time to see the joys of waking up later or being with loved ones and pets more.

Now there are drawbacks of course. Meetings are harder to organize, and anything face to face would take planning. Collaboration is also harder. But as soon as companies see the savings and hear employee feedback we’re going to see a LOT of companies migrate from offices. After the coronavirus, a lot of leases will dry up with no renewals. Or more employees will ask to work from home, shrinking the office space needed.”

Garcia reluctantly agreed.

“A lot of people like me have been dreading something like this happening. Companies and workers will now be forced to do a comparison. And honestly the cost savings will be big for them. I’m honestly very worried about tenants staying if they decide that working from home is better for them somehow.”

The future of office space

When asked about estimated percentages of companies leaving, both Sherman and Garcia were hesitant to give a figure.

“I don’t know,” said Sherman. “It depends on how long this lasts and what reactions would be. But based on the rates we’ve been seeing before the coronavirus, it can potentially be hundreds of companies.”

Garcia had a different figure in mind.

“That’s a good question,” admitted Garcia. “With my luck it can be half, but realistically every landlord out there will have one or two drop in a years time at least, simply because of the cost and the chances of a recession right now. Gun to my head I’d say 5 or 10%. Conservatively.”

While evidence points to an even larger amount of vacant office space post-coronavirus, it remains to be seen just how big of a percentage it might be. Political implications can be huge as well, with many new home offices in suburbs and more upscale parts of different cities replacing downtown offices, potentially shifting more income and taxes out of cities.

“We may just see a lot of employees, especially introverts, wanting to work from home after all this is over,” speculated Sherman. “It could be as simple as not wanting to leave their dog home alone anymore after spending so much time from them. But we will see it happen in some way, shape, or form.”

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Evan Symon
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2 thoughts on “The Fate of Offices: A Long-Term Coronavirus Effect No One is Discussing

  1. Converting empty office space into residential space would be one way to increase housing stock without having to go through the bureaucratic hassles involved with new construction

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