The coronavirus remote work experiment is becoming a permanent trend, but at some point employees will return in numbers that are consistent with the past. When? It could be five years, according to a new forecast from Cushman & Wakefield.
Global office space will not return to its pre-Covid peak until 2025 and overall, 21 million square feet of office space will be lost due to the pandemic following the prospect of one of the largest real estate services firms in the world. Between the second quarter of 2020, when Covid-19 hit the U.S., and the third quarter of 2021, net negative square foot office damage will hit 95 million square feet, about 10 million square feet more than the financial crisis.
The situation will be the worst in the west. During the financial crisis, Canada, Europe, and the United States saw a combined loss of 120.5 million square feet of top-to-bottom occupancy. Including Q2 2020, this will peak over 200 million square feet in the Covid recession, according to Cushman & Wakefield's analysis.
Working from home is "very real"
"We know this work from home is very real," the company's chief economist Kevin Thorpe recently told CNBC.
For the study, Cushman & Wakefield interviewed some of the world's largest companies about the future of the office and tried to measure both the cyclical impact of the Covid recession and the structural impact, assuming a greater increase in work from home.
According to Thorpe, two important findings emerged. First, office leasing fundamentals are being significantly impacted and vacancies are reaching all-time highs. The second finding, however, is more encouraging: According to Cushman & Wakefield, the office property market will recover fully, largely due to employment growth and the continued shift in the US economy's focus on certain types of professional occupations.
Covid-19-induced vacancies will result in more than 200 million negative net space in the office real estate market, but growth in professional services jobs will lead to a five-year recovery, says Cushman & Wakefield.
Thomas Barwick | Getty Images
Overall, the real estate company estimates that 82% of the damage is due to cyclical factors: permanent loss of office work and the increase in coworking, while 18% is due to structural factors: mainly assumptions about permanent remote workers and hybrid workers – those who sometimes work remotely.
Working from home will double and the number of hybrid workers will increase. The study estimates that the proportion of people who work from home on a permanent basis in the US and Europe will increase from around 5 to 6% before Covid-19 to between 10% and 11% after Covid, while the proportion increases Hybrids – also mentioned as agile workers – will increase from 32% to 36% to almost half of all workers.
Levi Strauss & Co.'s CFO Harmit Singh said at a CNBC @Work virtual event recently that he pulled the plug on new commercial real estate during the crisis. "The myth that working from home is not productive has been dashed," said Levi Strauss CFO. "I think we're going to settle into a culture where working from anywhere will be the new norm, with work from home or office or a hybrid arrangement."
Google recently announced that it would try a hybrid work model because most employees don't want to be in the office every day.
Many younger workers use the Covid remote working shift to travel and embrace a "digital nomad" lifestyle that could become permanent for a new generation of workers.
Over time, the shift in the economy to a knowledge-based professional services economy will offset the trend towards flexible workforce, according to the study by Cushman & Wakefield. "But there will be significant challenges in the office space in the near future," said Thorpe.
Many workers still do not feel safe enough to return to office. One study found that only 14% of workers said they trust their CEOs and senior managers to get them safely back to work.
According to the forecast of the study, the global vacancy rate will increase from 10.9% before the Covid crisis to 15.6% by the second quarter of 2022.
Some of the largest companies in the world expanded office space in large cities like New York during the crisis.
Facebook, which has been buying real estate in New York for years, signed a major lease last month for James A. Farley's old post office building in Manhattan. Amazon also bought the Lord & Taylor building on 5th Avenue, despite the fact that Facebook CEO Mark Zuckerberg has said that in the future, half of the company's workforce may be remote. In March, when the Covid crisis hit the United States, Amazon paid over $ 1 billion to acquire the Lord & Taylor building in New York, which covers more than 600,000 square feet.
A new analysis by Cushman & Wakefield estimates that working from home will double worldwide in the next five years, with the largest proportion in the west.
Cushman & Wakefield Research "Global Office Impact Study and Recovery Timing"