Breaking Down the Case for Scaling Back on Office Space

The sudden shift to remote work in March answered the question many employers wondered—would productivity fall if employees worked from home full-time?

The answer is no, according to many surveys including one from Mizuho Securities. It found that the majority of the company’s employees (80 percent) work from home, and more than half would like to continue to do so. About three-fourths of Mizuho employees expressed they were very comfortable working from home.

These sentiments are hardly limited to Mizhuo. It is a paradigm shift that is affecting landlords with offices in expensive urban centers and central business districts. The expensive office leases look less desirable to companies as more employees request to work from home, without a decline in productivity. The empty offices also affect the business districts with fewer patrons frequenting shopping centers and restaurants during work breaks.

COVID-19 also affects office space for companies that will require employees to return to work. Social distancing protocols will reverse the trend of less office space per employee, which had been declining since 2009. New protocols require a minimum of six feet of distance between each employee. These protocols may increase the need for more office space, but it is offset by the lowered demand for in-person office space.

Certain niche office spaces may still hold value, such as offices in the suburbs, government offices and specialized offices in the life sciences field. Fields such as life sciences are not as impacted by the remote work trend as the need for conducting lab work requires the employee to commute to an office.

The COVID-19 pandemic has affected rent collections for office landlords, with an overall collection rate of 95 percent or higher. Broken down into sectors, the healthcare sector holds steady at up to 97 percent rent collected, but only 20-30 percent for malls, 50-70 percent for shopping centers, and 20-40 percent for retail space.

Bottom line: Global Workplace Analytics estimates that companies can save roughly $11,000 per employee with a flexible work-from-home arrangement. This decrease is attributed to savings on office leases and an increase in productivity from the employee.  Employees themselves can save up to $4,000 on commuting and food costs.