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News & Insights

What Happens with Commercial Real Estate After the Pandemic?

  • May 13, 2021
News & Insights

What Happens with Commercial Real Estate After the Pandemic?

  • May 13, 2021
For the first time an end to the COVID-19 pandemic is in sight. The daily case count has fallen substantially as more and more people have gotten the vaccine and there’s much talk about returning to “normal.” For millions of workers that means going back to downtown business centers and suburban office parks but make no mistake: the pandemic has left its mark, the new “normal” will be very different from the old one.

The Normality Debate

We know with certainty that companies are now assessing commercial property needs. Cushman & Wakefield reports that tour activity — an important indicator of future leasing activity — rose 161% between December 2020 and March 2021. 

Looking forward, some organizations want more square footage, some want less, and everyone wants a setting that’s best for employees, customers, and clients. The catch is that what works for one organization may not work for another and there’s considerable debate regarding how best to proceed. 

For example, Twitter announced last year that it was going all in with work from home (WFH) job opportunities. 

“If our employees are in a role and situation that enables them to work from home, and they want to continue to do so forever, we will make that happen,” said the company. 

Microsoft believes there’s a WFH role for employees, but not full-time and not for everyone. The company sees “working from home part of the time (less than 50%) as now standard.” 

ViacomCBS, according to Variety, expects the bulk of its 20,000 employees — 70% — to work at home from time to time. 

Google is adopting what might be called the 60/20/20 approach. According to Google CEO Sundar Pichai, the company expects “around 60% of Googlers are coming together in the office a few days a week, another 20% are working in new office locations, and 20% are working from home.” In effect, 80% of the Google workforce will be working in a formal office setting at least several days a week.

The Office Traditionalists

However, not everyone is embracing the new WFH patterns. Traditionalists remain.

“This is not ideal for us and it’s not a new normal,” said David Solomon, CEO of the  Goldman Sachs Group, according to Bloomberg News. “It’s an aberration that we are going to correct as quickly as possible.”

JP Morgan Chase CEO Jamie Dimon holds a similar view.

“We want people back to work, and my view is that sometime in September, October it will look just like it did before,” said Dimon in May according to CNBC.

Amazon says about 10% of its office staff now work from office locations, but that’s going to change.

“Our plan is to return to an office-centric culture as our baseline,” the company said in March. “We believe it enables us to invent, collaborate, and learn together most effectively.”

For many large office users, the need for commercial space remains. Medical offices, law firms, and government officials all need office space because they interface with the public.

Consider telehealth applications. You can now speak with your doctor, a time-saver when compared with office visits. But will telehealth systems fully replace office visits? Not likely. 

How does a doctor take a blood sample or examine a possibly broken bone? And what happens if the patient is calling from a distant location? Will the doctor’s medical license allow him or her to practice across state lines? Which jurisdiction’s rules govern medical malpractice insurance?

The New Questions

While much of the post-pandemic debate concerns traditional business settings versus home offices, in the background the new reality may be more complex. 

Assumptions regarding the old normal are in flux, meaning that even if they wanted to, most organizations will not return entirely to pre-pandemic business practices. Instead, every business will have to determine space needs according to how it deals with staff, customers and clients. 

The post-pandemic era raises a number of questions.

  • With more remote workers how do you assure data, network, and systems security?
  • At what point is acceptable office supervision an invasion of privacy when people work from home? 
  • Can organizations require vaccinations as a condition of employment? No doubt lawyers are working out such policies at this moment.
  • Have staffing requirements changed as a result of “robotic process automation” (RPA), increasingly common software that does repetitive office tasks?
  • How do we handle “digital exhaustion” when employees increasingly work from home at nights and on weekends?  

The New Workforce

Today we see large numbers of unemployed workers while at the same time many businesses face severe labor shortages. Some blame federal programs with additional unemployment benefits and stimulus checks, but the reality is that in early May 2020 there were 23.1 million unemployment claims, a figure that fell to 3.7 million this April. 

Simply put, millions of workers have gone back to their jobs and yet for many businesses labor availability is no longer assured. Non-farm labor totals have fallen from 152.5 million in February 2020 to 144.3 million in April according to The Washington Post. 

The shortage is at both ends of the labor spectrum. Entry-level workers for fast-food outlets are now hard to find, but skilled workers are also in demand. For instance, the construction industry has good hourly wages and yet the number of open positions in the industry went up from 272,000 in February to 344,000 in March. 

Workers are now re-assessing what they want from their jobs. A March study from Microsoft found that 40% of the workers it surveyed had considered leaving their employers this year. As a result, says Microsoft, “a thoughtful approach to hybrid work is critical for leaders looking to attract and retain diverse talent.”

But while the work-at-home movement has plainly gained strength, it’s not for everyone. The Microsoft study found that the need for physical office space remains. 

“Over 70 percent of workers want flexible remote work options to continue,” said the study, “while over 65 percent are craving more in-person time with their teams.” 

“Most workers welcome the option to work remotely one or more days per week,” says the Becker Friedman Institute at the University of Chicago. It adds that the workers it studied were “willing to accept pay cuts of 8 percent, on average, for the option to work from home two or three days per week after the pandemic.”

Such desires, said the study, were “pervasive across groups defined by age, education, gender, earnings, and family circumstances. The actual incidence of WFH rises steeply with education and earnings.”

Rethinking Remote Work

There’s a growing sense that work-at-home options are advantageous for some employees, but not all. And ditto when it comes to employers.

Research from the Robert Half staffing service shows that those who work from home spend more time on the job. Work/life balance is often an issue. Almost 70 percent of remote employees work on weekends and 45 percent put in more than eight hours a day.

“While remote work affords employees greater flexibility, it also makes disconnecting extremely difficult,” said Paul McDonald, senior executive director of Robert Half. “Many people feel pressure to keep up with rising workloads and are putting in long hours to support the business and customer needs. But everyone needs time to rest and recharge in order to give their best.”

While the pandemic may be more and more under control, it has not gone away. As a result, what we’re really seeing in the commercial office market space is a period of testing, a time to try new ideas, technologies, and systems. Some approaches which sounded ideal upfront are now being rethought while others are gaining acceptance. What’s certain is that a new normal is being created, the broad outlines of which are now beginning to take shape. 

To learn more about how commercial properties are preparing for the return to office, click here. 

More Articles

Industry Trends

Underwriting the Perceived Instability of Short-Term Office Leases

  • February 16, 2021
The threat of shorter office lease terms has been looming over the commercial real estate industry for several years. Companies first braced for the potential impact of new standards from the International Accounting Standards Board (IASB) recognizing all leases on the balance sheet, which took effect in January 2019. Then, the office leasing world was hit with additional challenges from COVID-19 as many companies opted to work from home and re-evaluated the role of their physical office space.
Industry Trends Insights

Envisioning the Future of the Built Environment

  • January 29, 2021
Amidst the ongoing crisis, built environments are at the front lines of change and will play a huge role in creating a more resilient world going forward. Office architects are re-envisioning the future of the workplace—where and how we work. Unfortunately, there is no crystal ball to predict exactly what the new future-oriented office will look like, but what we do know is flexibility and adaptability will be key in resilient design.
Industry Trends

Why Texas is becoming a commercial real estate powerhouse

  • January 21, 2021
It looks like 2021 will be another big year for Texas, a year when a lot of major companies will make the jump and move to the Lone Star state. Just look at these transitions:
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