Mindy W. Saffer
Mindy W. Saffer, LEED AP, is a managing principal at Cresa in Washington, DC. Email
Government-mandated closures have left many associations paying for space they can’t occupy and uncertain about what the future holds. As closure orders begin to lift, associations are deciding how to go back—and whether to go back at all.
Since the work-from-home mandates began in March, commercial real estate industry experts have been forecasting how organizations will view and use office space in the future. Conflicting ideas are being evaluated with no historical data to hang our hats on. Though the U.S. and world have experienced other tragedies that affected commercial real estate, nothing compares to COVID-19.
Conversations about the impact on real estate began the day tenants were sent home. The first question to arise was about rent abatement through the force majeure language in the lease. Unfortunately, force majeure does not include rental abatement.
So, conversations began with landlords to understand their position on helping tenants. Most landlords were highly focused on retail tenants, whose income was immediately affected. Some landlords recognized that office tenants also needed help. The responses included rent deferment plans and rental abatement associated with some form of lease extension. Some landlords were willing to reduce operating costs and use security deposits in lieu of rent payment with an expectation that the security deposit would be paid back later.
As states begin to relax their stay-at-home orders, tenants are considering how and when to get back into their office space. Re-entry will be phased, based on recommendations from government officials. Questions associations should ask themselves include:
One client recently told me they won’t be returning to their office space until there is a vaccine because they don’t want to put their employees at risk, and remote working has been successful. Another questioned how effective the staff will be in the office if they are wearing masks, social distancing, and not able to be in a conference room together. She believes they should continue remotely because it is working fine.
Some questions will only be realized once employees return to the office. One thing is certain: All tenants will be addressing these concerns before they make long-term commitments to office space in the future.
So, how will all of this affect the commercial real estate industry long term? It’s likely that organizations will continue to maintain some remote operations rather than secure more space to allow all employees to observe proper social distancing guidelines at the office.
Over the past few months, many executives who previously resisted the idea of telework have learned that their teams can work productively from home. That lesson has implications for the long run. I believe organizations will increasingly look to lower operating costs as well as provide their employees flexibility by creating a robust and sustainable remote work policy and complementary office plan. The combination can maximize productivity, reduce operating costs, and benefit the environment. If my prediction is correct, tenants will lease less office space in the future and vacancy rates will rise, providing great opportunity for tenants to negotiate favorable new lease terms.
Only time will tell, and we are all looking forward to getting past this unprecedented and uncertain situation. My personal hope is that we have learned what we have been doing wrong and will not go back to normal, but instead go back better.