Ever since the Covid-19 hard lockdowns began in all seriousness across the world earlier this year, the world has been abuzz with talk of how the crisis has changed the world, and at the centre of much of the debate has the sudden forced move to working from home for many office employees, and the rapid and successful adaptation to online interactions with colleagues, clients and business partners, online events and webinars, and more.
Various employee surveys appear to confirm
the popularity of remote working amongst many services sector employees, saving
them costs and time on daily commuting.
Some concerns have been flagged, with some pointing to human relationships
between fellow employees perhaps “going a step backwards” due to a lack of
“same location” interaction, but even many people harbouring some of those
concerns often agree that while there may be a need for some time at the
office, the amount of time could be significantly reduced.
Nevertheless, while remote working will not be without flaws, the office work
force in large parts of the world has become far more capable to work remotely
over this crisis period, increasingly enabled by the systems and platforms that
support remote work.
But the Covid-19 lockdowns have probably given the scale of working from home a
massive boost for another reason over and above forcing people into getting
used to it. The lockdowns have also contributed to a very deep recession,
putting significant financial pressure on many businesses across the world.
Many CFOs will thus likely be eyeing out cost-cutting opportunities, and
reducing the amount of costly office space owned or leased by their companies
would surely be one such potential opportunity.
The recently released KPMG CEO Outlook, the results of a CEO survey of 315
global corporate CEOs (including 100 in the US) points to a widespread desire
to scale back on office space. Besides a widespread acceleration of digital
investments, a major 68% indicated that they plan to downscale their companies’
office space.
Besides the cost reduction aspect, 72% of the CEOs saw benefit from remote
working in terms of widening their talent pool. And why wouldn’t it? Many of us
have considered a new job prospect in part based on where the job is located,
commuting time in South Africa’s increasingly (until recently, at least)
congested cities more-and-more an issue.
It is thus realistic to expect that following the relative success of this
forced remote working “experiment” across the world, a greater portion of the
office worker population of the economy will find themselves working from home
either full time or part time.
This has potentially major implications not only for office property landlords,
already faced with significant vacancy rates, but also for the likes of
residential developers and urban planners, as many households’ location and
lifestyle decisions change. But it will be unknown territory for the property
industry for some time, and there will be a lot of feeling the way forward.
Key questions around potential impacts of an increasing remote working trend
How fast and what magnitude?
The first big question regards the timing and magnitude of the potential move
to get a greater portion of the office workforce operating either full-time or
part-time from home. Certainly, due to the lockdown, many corporates have
rapidly scaled up their remote working capabilities. But for many, the offices
and their costly infrastructure are still standing fully functional and ready
for their inhabitants to return, albeit in smaller numbers in some cases due to
social distancing measures within the buildings. At what speed does the amount
of office space get scaled down then? That may well be influenced in part by
when leases expire or when an alternative use is found for a building in some
cases.
And, of course we have yet to ascertain to what extent management is
comfortable with staff working remotely from a simple control and working
relationships point of view. It is one thing to try and take a positive view on
something when you have no choice (i.e. management have been forced to accept
remote work for the time being whether or not they like it), but it is a
different matter when you do have the choice. When the Covid-19 crisis is
completely past, and offices fully “open” again, then we will see to what
extent old management habits have changed or not.
In short, the pace and magnitude of the remote work drive is a major unknown
for the property industry, and the challenge is not to over- or under-expect on
this change.
How far away from the office will households be prepared to live?
If one needs to commute to the office far less frequently, the distance of the
trip from home to office becomes less of an issue in deciding where to work or
where to live. On average, one would expect many households to be prepared to
live somewhat further away than previously the case, should they in future be
required to travel to the office or to business meetings less frequently
compared to previously having to do the trip almost daily.
This comfort with living further from their official place of work would be
enhanced should a greater level of remote working ease the traffic congestion
in cities too.
But again, this will all depend on the speed and magnitude of a potential
future remote working trend.
Will there be a big city exodus?
Again, one has to guard against over-expecting on the magnitude of any
increased pace of relocation to the country towns or popular semigration
destinations on the other end of the country from peoples’ work headquarters.
The weak economy has placed significant financial constraints on many
households.
The weekly commuting option by plane for some from the likes of Cape Town or
Durban to Gauteng for instance, could conceivably increase in popularity should
it be possible for many such weekly commuters to make the trip to headquarters
less frequently, perhaps only once every few weeks for important business
interactions.
But weekly commuting by aircraft is and will remain for the affluent few. It
remains costly. In addition, for many corporate employees there will likely
still be sudden unexpected in-person interactions or client/site visits that
crop up, and in such cases being a two-hour flight away is often impractical.
Therefore, where I would expect more of an impact of remote work over time is
within a big city itself, more households over time living on average further
from their office but still within the same city or metro region.
And I would extend this to include a noticeable increase in popularity of
living in surrounding towns perhaps a two-hour drive from the office but not a
two-hour flight away. For Gauteng commuters, Potchefstroom springs to mind as
one example, a sizeable town with amenities such as retail, schools, a
university and medical facilities that many working households would want, and
around an hour-and-a-half drive away from Joburg.
But there is one further factor to consider when formulating one’s expectations
on this. Household desire to leave the city for quieter and less congested
towns depends on cities remaining as they are. But if the remote work experiment
is a rousing success, and goes far to alleviating the dreaded congestion on the
roads over time, and our daily involvement therein, then perhaps city suburban
living will be more appealing after all. So nothing is cut and dried.
Has space become more important for households? In what ways could space have become more important?
Firstly, lockdown can’t have been nearly as pleasant for those households
living in apartments or small cluster houses as it was for those with free
standing full title homes with gardens. Does the memory of lockdown lead to a
longer term desire by many to move to a more spacious premises? Possibly, but
only time will tell.
Secondly, and strongly linked to remote work, is the likelihood that many of us
may spend far more time in our homes in future, if remote working takes off as
many expect. No longer will the home be a mere place to spend a few “off duty”
hours, but a far greater portion of our waking hours too. The home then becomes
far more important to our quality of life, and for many who have the financial
means, a more spacious home with suitable workspace may become a priority.
It would also appear that as we emerge from hard lockdown and Covid-19 pandemic
fears, a portion of households across the world is focusing more on health and
well-being, which includes exercise and the outdoors. Bicycle shops and
manufacturers the world over have been pointing to a major bike sales boom
during and after lockdown, partly to avoid using public transport in developed
countries, but seemingly also for recreational purposes. Should this trend
last, it points to a greater value placed on safe and well-kept open public
recreational spaces and roads.
For those who can afford it, this may point to some renewed popularity in
larger homes and homes located near to such safe outdoor recreational
amenities.
But what then of high-density living near to major business nodes?
A further question stems from whether there are any potential “losers” from any
future remote working trend? The obvious one at risk is office property, with a
likely drop in demand for such space, and office landlords will be required to
“get creative” with their buildings. Inner cities have perhaps shown us a way,
with significant repurposing of unused office space into high density (often
affordable) residential property.
However, in tandem with the question around office space, we would need to ask
the same question regarding high density residential property in close
proximity to major office nodes.
One of the key selling points for especially higher end high-density
residential living is being close to place of work and avoiding a lengthy daily
commute through heavy traffic.
So if there is far less daily commuting, less people physically working in
major office nodes, and less traffic congestion, how does this impact on the
popularity of, and demand for, high-density residential living?
My guess is that more affordable residential living units will remain in
demand, but I’m less sure of higher end high-density living. Does a portion of
its demand shift to more spacious homes in the more far flung suburbs with
their relative spaciousness?
The property development sector will likely have to grapple with this question
too.
Finally, do many company offices de-centralise further too?
Companies have in the past often considered their head office locations based
on what suits management, clients or staff. Questions such as where management
prefers to live, or is there good transport infrastructure to and from work for
their staff have likely often been asked.
Central business districts and major de-centralised nodes have typically been
the places around which transport planners have planned and rolled out
infrastructure. These nodes have thus attracted businesses in greater numbers,
while the need to be physically close to associated businesses and clients also
led to companies conglomerating around major nodes. If far more business
activity takes place remotely, does this lead to increased de-centralisation of
companies too, not only to city decentralised nodes but even to smaller towns
for lifestyle purposes? The potential exists for well-run municipalities and
“lifestyle” towns to actually compete for a portion of this business.
Conclusion
The widely anticipated longer term remote working drive has potentially far
reaching implications for the property market, not only for office but other
property sectors too.
In the near term, though, there will be more questions than answers surrounding
this potential trend. While many corporate CEOs appear to be planning for
greater levels of remote work, as yet the pace and magnitude of the remote
working trend is difficult to guage.
While many companies may have embraced remote work because they were forced to,
the true extent of this enthusiasm from management teams and employees alike
will only become clear once the Covid-19 crisis has passed and office buildings
are 100% open once more, i.e. when people are free to choose.
Nevertheless, significant enthusiasm for the concept should be expected, given
the success of the lockdown remote working “experiment”, and asking the
relevant questions as to its impacts is thus important.
These questions include:
- What will be the pace and magnitude of any trend towards remote work, with much office space and infrastructure still in place for the time being?
- In a scenario of less frequent commuting to and from the office, and possibly less traffic congestion too, how far away from their official place of work will households be prepared to live in future? This has potential benefits for more far-flung suburban property markets.
- Will there be a big city exodus? Let’s not get too carried away, but it is likely that living in smaller towns outside of major metros may increase in popularity, as might long distance commuting by plane for an affluent few.
- Has space become more important for households? The building trend in recent decades has been towards smaller average size of units, smaller average stand sizes, and increased sectional title properties. Does this trend slow as a portion of households with the financial means look for larger and more spacious homes with appropriate work space? It makes sense if you’re spending far more time at home.
- And what about high density living near major business nodes? Does that lose its popularity if less people work in those nodes, at a time when office owners might be looking for potential building repurposing opportunities?
- If business travel and physical company events are also set to decline, due to the success of operating online, what does this mean for the corporate-driven hotel and conference venue demand and those property markets?
- Finally, do company offices de-centralise further, with smaller cities and towns potentially picking up a greater chunk of what office “pie” is left?