Experts divided over future of office space

BY Sunday, December 20, 2020 07:15pm

Through multiple lockdowns and workplace restrictions, companies have altered the way they think about and use their commercial office space because of the COVID-19 pandemic. 

West Michigan real estate experts say this will carry over into 2021, but the extent of how much a business will be affected in the new year is extremely industry-specific. 

Most office and retail users will be in better shape than business owners in hospitality that do not own their building — especially non-fast food restaurants, said Mark Ansara, vice president of Colliers International’s West Michigan office.

“It’s harder for a restaurant that’s leasing than one that owns their own real estate that can work with their bank,” Ansara said. “Some landlords are forgiving and some are not.”

The firm hasn’t seen any new restaurant leases unless the facility has a drive-thru window, Ansara added.

“Restaurants and bars are not able to be open right now, and are already bleeding. And there are not enough Band-Aids in the world to stop the bleeding,” Ansara said. “They can’t survive with just takeout.” 

Larger chain restaurants are struggling as well, but they are better positioned than local eateries, according to experts.

“The local guys without the deep pockets are the ones hanging on by a thread,” he said.

Hospitality businesses including restaurants are all affected by the lack of entertainment downtown, according to experts.

“Our downtowns are alive and well when we have entertainment, but we do not have a vibrant downtown right now,” Ansara said. “It’s just another layer of the challenge.”

Empty offices also mean fewer people patronizing downtown restaurants and businesses, said David Wiener, senior vice president of Colliers’ West Michigan office.

Experts divided on office space

Wiener said expert opinions vary widely when it comes to the demand for office space through 2021.

“Our office at Colliers is seeing a couple things we want to keep a close eye on,” he said. “Some people have been working from home and have gotten comfortable doing that. But we also believe that businesses are going to need more in-person activity to keep their sales up and driving what they do.”

Some clients are considering adding square footage per employee to socially distance. The “million dollar question” is whether employers need to increase current office space to accommodate social distancing or whether enough employees working from home will offset the need for more space, Wiener said.

Colliers is also seeing more companies signing short-term lease extensions that would typically be for five to 10 years. 

“About half of the (office space) experts will say you’ll need less space and half will say you’ll need more space,” Wiener said. “We do know that if the workforce is back working at full capacity that there will need to be an increase in office space for social distancing.”

A majority of the 2,000 office workers Jones Lang LaSalle Inc. (JLL) surveyed in 10 countries said they want to work remotely more than two days a week on average, which is twice as much as pre-pandemic. Three-quarters of employees reported they want to continue working from home on a regular basis, according to the survey. Yet nearly three-quarters of survey respondents said they want the ability to come into an office, and 70 percent consider it the best place for team building and connecting with management.

“Companies of all kinds are seizing a once-in-a-lifetime opportunity to change the office model and lean into workforce preferences,” JLL Director of Global Research Marie Puybaraud said in a statement.

Before the pandemic, the office market had become “highly densified” over the years, said Jeff Karger, senior vice president of JLL in Grand Rapids. 

“We used to talk about 200-350 square feet per person, and a lot of companies had gotten that down to 100-200 square feet per person, really packing people in,” Karger said. “There will be a de-densification, so some businesses might need a little extra space or the same space because they can spread out more if some employees continue working from home.”

Karger said the amount of subleased space on the market has increased, which could indicate some downsizing.

“We’ve seen an increase in sublease space not just downtown but across the board, which is a result of companies working more from home or not doing very well or both,” he said.

Looking ahead

Wiener classifies 2021 as a year in which companies will “wait and see.” He said none of his clients have defaulted on office leases, and almost every client is paying their rent on time despite most offices working remotely.

Some predictions at the beginning of the pandemic said offices might relocate from downtowns to the suburbs. In West Michigan this year, large companies have moved offices from downtown to the suburbs, and vice versa. 

If downsizing office space proves to be a trend for 2021, Karger noted the potential for some downtown office space being considered for residential use.

“Whether it’s a change of use to apartments or hotels, I could see a project or two changing,” he said. “I think landlords will be looking at all their options.”

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