As companies try to tempt workers back to the office, developers are betting on swanky office buildings. But a huge uncertainty hangs over them: will enough people come?
with alluring amenities. But a huge uncertainty hangs over them: will enough people come? Even as vaccinations progress, workers have been slow to return. In early May only one in 20 buildings in America had occupancy levels above 10%, compared with a third in Europe and Africa, and roughly half of buildings in Asia, according to Freespace, a property-tech firm.
Few in the industry, however, will be drawn on the reckoning they may face. The flight to quality is leaving older buildings looking undesirable just as remote working reduces the total demand for office space. Start with the risk that older buildings become stranded assets. Around half of Hong Kong’s premium stock and nearly two-thirds of commercial property in London were built more than 20 years ago.
Yet none of this can mask the fact that as remote working sticks, demand for office space should fall. Companies are beginning to rethink their property needs, with many downsizing or delaying new leases. Globally, more than 103m square feet of office space has already been vacated since the pandemic began, according to Cushman and Wakefield, a brokerage. That is 18% more lost floor space than during the financial crisis of 2007-09.
A number of obfuscating factors cloud the picture, however. Generous stimulus might have postponed increases in delinquencies and distressed sales. And many firms have not made up their mind yet. No one yet knows how many workers will stay home, and for how many days of the week. For the most part, investors are avoiding rash transactions: buyers are wary of overpaying, while sellers are unwilling to take a loss in case the crisis turns out to be a blip.
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