March 2020
The challenge of imagining the future of cities in a post-pandemic world has been taken up by a wide range of opinion leaders, policy makers and urban practitioners, ranging from urban planners and architects to real estate professionals, economists, and institutional lenders. Thoughtful commentaries by Adam Gopnik in the New Yorker and Jack Shenker in the Guardian remind us that plagues, pandemics and comparable disruptions have shaped cities and civic behaviour over many centuries. Expect more of the same, they suggest, and then some. But when it comes to major employment in office buildings there are very distinct differences between short term outcomes and long-term trends.
There is little doubt that the COVID-inspired requirement for self-isolation, a social experiment that has been imposed abruptly at an unimaginable scale and the impact of the resulting financial recession on employment and growth will reduce the need for office space in the short term. On the demand side short term vacancies will rise. But a closer look at the supply side suggests a more tempered expectation.
The supply of office space takes years to alter. Rarely are office buildings torn down because of bad markets and new office space takes a minimum of 5 years between the decision to build and the completion of the building. For example, after the 2008 financial crisis the new supply of office space did not decline. Buildings which were under construction when the Crisis occurred were completed over the next 5 years. By that time major tenant demand had returned to normal.
Prior to the Covid crisis office space vacancies were at an all time low. Investors were beginning to build new even without pre-leasing, that will change. Vacancies in all classes will increase in the short term. The market can absorb a considerable contraction in demand while supply will continue to grow as projects under construction are completed.
One of the central questions being asked as companies and their employees discover that working from home is possible on a grand scale, is whether this will have long-term impacts on the demand for new office space especially in established high density clusters. Colliers Real Estate (‘The office of tomorrow is here — and you’d better get used to it’), and Eric Reguly in the Report on Business (‘COVID-19 may change the office tower business forever’) suggest that working from home could indeed become the new normal.
This is not first time that city dwellers have been faced with confident predictions that their working world is about to be disrupted.[1] There are many reminders that illustrate how hard it is to successfully predict how business will respond to potential disruptions. The work at home solution to productivity has a long history of starting and stopping.
Until the COVID-19 crisis, working from home had largely been driven by employers as a cost-cutting measure[2]. Employers have consistently relied on technology to reduce the cost of office space and increase employee densities, starting with the introduction of electronic file storage. Companies like Xerox in the 1980s, IBM in the 1990s and Compaq after 2000, all drove investments to encourage working from home for mostly cost-cutting reasons. With every innovation, affordable desktop-based video conferencing, messaging apps and other aids to network-based connectivity, industry observers and policy makers alike have historically predicted that technology will reduce office space demand by orders of magnitude.
The advent of the personal computer in the mid-1980s, followed by the impact of a severe recession in the 1990s, saw a major shift in the ratio of ‘professional’ to ‘support’ staff, as lawyers, engineers, administrators and the like learned to do their own typing. While this resulted in less personal space per worker, who by now were working in cubicles instead of private offices, the requirement for more meeting rooms and spaces for collaboration had little effect on the overall quantum of office space needed by each company. Despite considerable advances in the efficiency and concentration of employees in office space, the requirement for new buildings in the Greater Toronto Area (GTA) continued unabated. From the late 1970s, the construction of new office buildings continued at an average close to 3 million sq. ft. per annum while at the same time planners were significantly increasing office employee density.
In the search for villains and potential solutions, it will be important to avoid demonizing high density development clusters and close-packed work environments such as offices as factors that facilitate the spread of the virus. Taipei is one of the highest density cities in the world, with massive concentrations of office space, but stringent public health measures imposed by Taiwan, including physical distancing, have effectively mitigated the impact of COVID-19[3]. In contrast, low-density suburbs like New Rochelle are among the hardest hit areas in New York, currently the epicenter of the pandemic.
While the world-wide work-from-home experiment was instituted to separate and isolate people, will technological breakthroughs in telecommunications be implemented from home or from an office? It is worth asking if this capability will outweigh the attraction of face-to-face communication or prove to be an effective substitute for personal interaction over the long-term.
One of the principal benefits of the modern office environment is the potential to blend networked connectivity with innovation stimulated by face-to-face interaction. Once vaccines, early detection processes and other complementary strategies are in place, can we expect that city life defined by proximity will return? The real question is when will technology, improvements in on the spot testing, vaccines and other pandemic control procedures mitigate the need for social distancing?
[1] In 1985, Coopers & Lybrand, forerunner of the accounting/consulting giant PwC, famously predicted that offices would be paperless within a decade
[2] A related argument in the 1980s and 1990s was that working from home would dramatically reduce the number of commuters, but this did not happen – ‘The New Geography of Office Location’ (2011)
[3] https://www.vox.com/future-perfect/2020/3/10/21171722/taiwan-coronavirus-china-social-distancing-quarantine describes the lessons learned from SARS as preparation for public health strategies in place prior to COVID-19