Property market under siege as coronavirus transforms how we work
“The world of work will never be the same again…” – Opinion piece
Economics is, observed the English economist Alfred Marshall, a study of mankind in the ordinary business of life. So true. What we buy, how we buy, where we work, how we socialise, how we exercise are all interconnected in our human ecosystem. Which is why dramatic shifts in our ways of working are having a profound impact on property markets around the world.
In July this year well-known property market strategist and commentator John Loos, from FNB Commercial Property Finance, put out a report in which he observed: “Remote work has become a key potential challenge to office market performance on top of South Africa’s long-term economic stagnation.”
Based on a survey of brokers, the report touched on two emerging trends which have the potential to change the face of the commercial property market dramatically: shifting the majority of employees to a work-from-home reality and, by association, the reconsideration of future office space needs.
In my view it is all but impossible to discuss the limitations currently being experienced in the property trade without fully understanding how work is being rewired around the world and how the rise of the gig economy will change the space needs of businesses.
Many believe that, post-pandemic, companies will return to their stylish glass and steel office blocks and it will be business as usual. Depending on the sector, some will. But for knowledge workers, for many professionals and for those who can work remotely thanks to the advantages of technology, the world of work will never be the same again.
How will we work?
For most of 2020, society and its workers have served as guinea pigs in a mass experiment which questions how we work, when and where. This has already resulted in a cognitive shift among workers – myself included – as to the form and structure working weeks took in the past. For example, I’ve cut out three hours of commuting time and untold hours spent socialising in a central office, giving me time to work on new projects and to hone my ideas and my messaging. I enjoy greater flexibility, which means I can spend time with my family and make up the hours in the evening or over a weekend. This new reward reinforcement mindset, I find, enables me to really crank up the gas when I need to deliver and has certainly increased my productivity. With my thinking having been effectively rewired, I’d be reluctant to return to an office environment.
I am not alone. Many of us have glimpsed a different, more technologically-enabled future which is kinder on a human level. One that offers the potential for greater balance and increased productivity.
This shift in thinking does not only impact individuals such as myself, companies are also tuning into the possibilities of smaller office spaces and remote work. Already ideas are being mooted and businesses are applying their minds to the redesign of spaces which are capable of dealing with social distancing measures, as well as the greater reliance on technology.
This foretells a future where employees will not be packed into open-office seating but where one might work two days from home and three days from the office; where employees come together to work in pockets and teams; where flexi-time models emerge; online meetings and conferences become the norm; and where the need for big, sprawling office parks becomes redundant.
Just think how this might impact a company which might previously have had a 15 000-personal office space. They might now only require a 2 000-seater head office, where they’ll doll out scheduled spots for departments and business units to meet. In practice, this means less outlay for the company in terms of capital expenditure and commercial property costs, so firms are likely to downscale. They might also look to take up space in outlying areas which are closer to the areas in which the majority of their employees live, rather than busy city centres – this would prove a great opportunity for areas like Soweto to jump on an investment rush and create dynamic local economies.
Another aspect of this debate is how companies see their staffing needs being met in the future. After years of questioning if productivity would take a nose dive should employees work from home, organisations have been pleasantly surprised to see that the opposite is, largely, true. This is causing a radical rethink about flexibility as well as the potential to tap into the freelance, gig economy and make use of professional services as and when needed, rather than relying on costly full-time employees.
The rise of the gig economy
Dominated by short-term contracts and freelance work, the gig economy has been bubbling over around the world for some time. Despite finding traction in pockets, many corporates, managers and individuals have been reluctant to really tap into the potential of a labour force that is not an ‘exclusive’ resource.
Our current and broad-based mindset shifts around work, coupled with the increased focus by companies on new business models, will increasingly start to entrench the idea of using skills in a multi-country environment. Since the lockdown came into effect in South Africa in March 2020 I have completed work for companies in various geographies, fully online. I have never met some of the people I am doing the work for, except virtually, but there is trust and we are literally building their strategy together. Similarly, companies can now tap into skills from around the world, making use of world-class talent without having to provide a desk and a computer for the privilege.
The pending property glut
When we consider the dramatic workplace shifts outlined above, it becomes clear that FNB’s Loos is on the money. As work is rewired we’ll see a significant number of commercial office properties coming onto the market. That, in turn, will result in a decline in rental returns while driving down the cost of both office space and the value of commercial property. What has traditionally been regarded as a safe sector for investment will undergo a massive price correction on the back of an oversupply of office real estate.
But it is not only commercial property that will take a hit. The impact of travel and tourism stressors will put pressure on holiday rentals and Airbnb properties, while weaker economies, heightened levels of unemployment and the associated impact on businesses will conspire to cause a housing bubble not unlike that experienced in the US around 2007-8.
Another element to the commercial property glut is the inevitable decline in physical retail, which will also hit the sector hard. Physical stores will become less and less attractive as platform-based e-commerce options take over, and as people become more comfortable with digital channels. Expect to see your local shopping mall changing forever, from big, open spaces and huge retail stores, to smaller branded outlets where you can pick up produce or touch goods before going home to order from the comfort of your home. This is very much a shift emanating from our cognitive rewiring and, for this reason, it is unlikely to be ‘business as usual’ for retailers and shopping malls once the pandemic is behind us.
Right now, all sorts of questions are being asked about how we transform these spaces of old into new, hopefully more inclusive spaces, how we can repurpose this physical infrastructure to help us revitalise our cities. Opportunities to develop quality, environmentally-friendly housing – complete with communal spaces, work-from-home facilities and high-speed broadband – are just one potential solution which developers in countries like the UK are currently exploring. Perhaps we should be too?
What is increasingly becoming apparent is that these cross-linkages within society will continue to highlight deep changes to established sectors as human beings change their behaviour patterns. The secret is to spot these trends as they emerge and to seize the opportunities they unlock.
Written by Abdullah Verachia
Verachia is CEO of The Strategists and on the faculty of the Gordon Institute of Business Science.
Posted in NEWS24’s Citypress on the 9th of September