Service-Oriented Firms Lead the Way While Larger Corporations are Holding Back.
Is the “Great Wait” for things to return to business as usual finally over, or is COVID-19 still rearing its ugly head? Well, that seems to depend on who you are and what your business is. For some SIORs and their service-oriented clients—attorneys, accounts, etc.—things are most definitely at least back to a “new normal.” Though such pandemic remnants as hand sanitizers and masks can still be found in workplaces around the world, and virtual meetings are likely here to stay, people have returned to their offices (if they ever truly left). On the other hand, larger corporations are moving much more slowly, with many taking a “hybrid” approach when it comes to having their employees in the office. And with the emergence of the omicron variant, some that planned a January re-opening are taking a “wait and see” approach—at least for the short term.
“It’s a changed framework,” says Frank Martin, SIOR, senior associate broker with Hall Associates, Inc., in Roanoke, Va. “My clients are not at full density.” As far as his own firm, however, he says “Everyone feels much better from an organizational standpoint to have people under one roof, trading institutional knowledge.”
“Our brokerage team was back operating essentially full-time in the office by May or June of 2020,” says Andy Westby, SIOR, president and managing broker of Goldmark Commercial Real Estate, Inc., in Fargo, N.D. “We have room to distance in our own offices, and our clients generally prefer more face-to-face meetings than virtual interactions.” Agents can set their own schedules, he notes, but adds that, in his opinion, the most productive ones choose to be in the office on a full-time basis.
“Our team is back in the office, and it has been for over a year,” says Adam Kaduce, SIOR, R&R Real Estate Advisors, Des Moines, Iowa. “We have found that having our team members together has brought new opportunities and new customers, and we have not had any health or safety issues.” He adds that his industrial and flex tenants are back in the office, and most never left. “Office is the slowest type of space to return, but 60% of our office customers are back in the office.”
“My people are back,” asserts John Culbertson, SIOR, manager at Cardinal Real Estate Partners, LLC, Charlotte, N.C. “Most people I know in commercial real estate—developers, investors, brokers, attorneys—the breadwinners, the stars of the office, never left. It seems like the more salaried types in supportive, administrative roles, left and worked remotely, but if it’s a healthy, small- to medium-sized business, they are back in the office.” He adds that his large headquarters and corporate clients, like Bank of America and Wells Fargo, are “not back to normal,” but that their leadership is.
“We don’t have a protocol; everyone can do as want they want,” shares Hans-Ulrich Berendes, SIOR, with Berendes & Partner Consulting in Hamburg, Germany. “But bigger companies have to be more formal. Siemens says people can choose two to three days to stay at home. Others say part of the company can come in Monday-Tuesday, the others Wednesday-Thursday, and organize day-per-day.”
Louise Frazier, SIOR, president of Blue Ridge Realty, Inc., in Knoxville, Tenn., says “The Great Wait” is most definitely not over. Her company manages and leases about 600,000 square feet of Class A office space in Knoxville, and about 50,000 square feet of specialty retail centers. Of those, she notes, “There are about 30% of the employees actually in occupancy in those offices, although the properties are 95% leased at this time.” Most of her tenants, she adds, are regional offices or headquarters for major corporations. However, the trend for smaller tenants in those buildings is to be almost entirely back at the office full-time.
“Many [larger clients] had recently planned for most of their employees to return in January (after postponing a return to the office in September) on a flexible basis,” she continues. “However, the omicron variant is starting to wreck those plans for the corporate user. I think we are going to see some version of the work-from-home stretching much into 2022.”
“Our business is a people business,” notes Grant Pruitt, SIOR, president and managing director of Whitebox Real Estate in Dallas. “It’s a real struggle to be able to communicate in a virtual environment.”
Law firms are in a similar situation, he adds. “In Houston, 53.6% of firms are back in the office, but it’s 77% of law firms,” he shares.
Interestingly, Colliers seems to be the lone CRE firm of those contacted that is not fully back in the office. “Colliers has very strict protocols,” shares Jeffrey Weil, SIOR, executive vice president in Walnut Creek, Calif. “In the beginning, we totally shut down, and re-opened under strict rules—masks in the office, social distancing, temperatures, extra cleaning, a health check—and some of us have HEPA filters running 24/7. There are no visitors allowed—even now. Broker open houses, which had been stopped for a while, are now ‘distant,’ with masking.”
While things among tenants loosened up last summer, that changed with the delta variant, he says. In San Francisco, Weil notes, 25% of employees have returned, with some other cities in the 35%-40% range. WHAT'S 'NORMAL' NOW?
Even in markets where many clients are back in the office, experts note that things are different. “Corporations will continue to transition to a hybrid environment and move away from the totally open concept—which has been the trend for the past 15 years—to a blend of collaborative space and private offices,” says Frazier. “Many companies may keep their current footprint but renovate to accommodate the ‘new normal.’ All companies are feeling pressure to allow continued flexibility in work schedules, but they need to see an increase in productivity.”
“I’m building a new building for a shipping industry client and we’re discussing the fit-out—how many cells, group rooms, [and] social space. It is changing,” says Berendes. “People want to have meeting possibilities, so it has to be flexible. Desk sharing will be a real topic for the future, so you do not go every day to the same room and the same desk. You may have to go on the internet to make a reservation. Companies calculate about half their employees might be at home two days a week.”
“I’m working on a Class-A office deal now with a large consulting firm, and the floor plan almost feels like a coffee shop,” adds Culbertson. “What they’re trying to do is create a place for people with flex days so when they want to be in the office it’s very informal—lots of food, lots of services.”
“Most of the employers in our market have re-opened their offices and are having employees work in the office full-time, or on hybrid schedules,” says Kaduce. “It appears that will be the new normal, with employees having greater flexibility on when they are in the office. Our customers have embraced a variety of hybrid models, but most require attendance in the office two to four days per week.”
Most of his meetings, he adds, have returned to in-person, “but we have embraced Microsoft Teams for meeting with those customers located out of town.” He says his office has also increased usage of Teams for sharing documents and presentations “to create more collaboration with team members and customers located in different locations,” and will continue to do so.
“I think we are back to a new normal,” says Westby. “We do have some clients that now prefer to meet virtually or are more open to handling business or contracts electronically. We have a full set of tools available to us now to conduct business [both] virtually and in-person that were not perhaps as commonly used ‘pre-COVID-19.’ We are also experimenting with new marketing approaches that may reduce the need to physically tour spaces—which could help speed deals up and qualify real prospects from pretenders faster than before.”
“DocuSign is huge,” notes Weil. “Virtual 360 tours are huge. There’s less use of hand sanitizers. There’s going to be more use of Zoom and Microsoft® Teams, but not exclusively.”
He says he got a new laptop because of COVID-19, and now has a state-of-the-art home office. “Our dress is more relaxed,” he adds. “I used to wear a coat and tie in meetings; now, it’s just a sport coat. I’ve even gone to meet people wearing jeans.”
“I would say we’re back to a new normal,” says Martin. “We have a different mask protocol—in the office with a mask, and maybe the option for people to work from home more than one day a week if they feel it’s necessary.”
In addition, he says, smaller operators (2,000-3,000 square feet) may have some uncertainty on how to use their space going forward, although “that’s not true with the ones that are growing.”LOOKING AHEAD
It’s clear that some of the changes in CRE that COVID-19 has “wrought” have become a permanent part of the landscape, according to SIORs. For example, “Every lease done in the last year and a half has added pandemic language for force majeure [clauses]; that will stay with us forever,” says Martin.
“I think it’s really smaller things—hand sanitizers, having more day porters in terms of cleaning staff; I don’t know if we’re ever going to go back to being OK with filth,” says Pruitt. “Air filtration systems are here to stay, with cleanliness as a general rule of thumb.”
“We are watching the next generation of design trends and their impact on office space design,” adds Kaduce. “With hybrid office occupancy, the outcomes that customers are looking for from their space have changed. We are seeing spaces that look more like airport lounges, with a variety of drop-in spaces and isolated spaces for heads-down and collaboration. Many of these don’t have reserved workspaces for every employee, and fewer private offices are planned.”
With virtual meetings becoming the everyday norm, internet security will become “a great problem for the future,” says Berendes. “I had a conference call this morning, and after 10 minutes they asked if I was having problems with my computer,” he shares. With continuing health and safety concerns, he adds, he predicts offices becoming “smarter,” with technology, for example, that will enable you to open a door without touching it.
"We’re coming in with a lot of safety—health ventilation, filter systems, not having to touch a door to get in, or elevator buttons—and taking advantage of technology to make them healthier and safer buildings."
Weil agrees. “We’re coming in with a lot of safety—health ventilation, filter systems, not having to touch a door to get in, or elevator buttons—and taking advantage of technology to make them healthier and safer buildings,” he says.
Frazier says that the recent growth in the power of her clients’ employees may have sprung from the pandemic, but it is going to continue in the future. “In discussions with the managers of these corporations, they do not think that employees are at their most productive continuing to work solely from home, but they feel compelled to have flexibility in order to keep employees,” she notes.
Frazier adds that at some point there is going to be a demand from the corporate executives to return to pre-pandemic status, but flexibility and transparency will need to remain. “Employees will want to see that the company leaders are also coming into the office to work and not Zooming in from their luxury vacation homes,” she observes. “The sense of fairness for workers has been heightened during this chaotic pandemic period, as have the issues of equity and inclusiveness. These are fundamental changes that are going to impact the office environment moving forward.”
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Hans-Ulrich Berendes, SIOR
John Culbertson, SIOR
Louise Frazier, SIOR
Adam Kaduce, SIOR
Frank Martin, SIOR
Grant Pruitt, SIOR
Jeffrey Weil, SIOR
Andy Westby, SIOR