While remote work has proliferated in a COVID-19 environment, we believe vibrant physical workplaces will remain in demand—and key to corporate culture.
Members of today’s workforce likely never imagined that they would have to live—and work—through a pandemic. The lockdowns designed to slow the spread of COVID-19 spurred many companies to quickly leverage technology to shift their workforces to remote work. This experience has prompted a big question among industry observers: Will the quick fix of widespread working from home become a fixture over the longer term—and will it lead to a drop in demand for office space?
We believe the answer is no. In our view, successful companies value the power of in-person collaboration in shaping a dynamic corporate culture, and their employees do too. While remote work can be effective in the short and even medium term, it cannot replace human interaction forever, and can introduce a long list of risks. Ultimately, a company’s culture needs in-person connection—and the physical workspaces that support it—to thrive.
Our outlook is based on our experience working closely with our tenants around the world, our observations in regions that have already started to recover—such as South Korea and Germany—and our history as an owner-operator that dates back more than 100 years.
With a portfolio of more than 250 office properties globally, we have managed through many challenging periods, including the dot-com bubble (when technological advances such as telecommuting were expected to render physical offices obsolete), the September 11, 2001 terrorist attacks, the Global Financial Crisis and the Brexit referendum. Offices endured these and other shocks, and we expect this resilience to continue through and after the pandemic.
An important distinction is that our view focuses on the area in which we own and operate office assets: the Class A segment—top-quality buildings in major urban centers with amenities catering to a “live, work, play” environment. We expect these assets will fare much better than older office properties with high levels of deferred capital expenditures or those in less desirable locations.
In fact, demand for high-quality office space may even increase in the long term as the psychological effect of the pandemic pulls back on the long-lived trend of office densification.
The Short-Term Outlook: Resilience
Throughout the pandemic, Brookfield’s commercial properties, including offices, have remained largely open to enable tenants to maintain critical infrastructure and operations. Our primary focus is currently on helping our tenants implement back-to-operations best practices—and on communicating the steps we are taking to make our office properties safe for workers to return.
As part of this process, we have considered the potential short-term effects of the crisis on the office sector, surveying our tenants and seeing the implications play out firsthand. What we’ve found suggests that the sector impact in the near term will be limited.
Lease payments throughout the pandemic have been stable for high-quality office properties—in fact, our collections through June remained largely unaffected. Moreover, since office leases are long-term in nature (10 years or more), we believe the sector should be well protected against any short-term market downturn or negative sentiment that might arise over the next 12 to 18 months.
When it comes to working from home, we have seen employers take different approaches throughout this period. Some highly visible tech companies have announced that their employees will continue to work remotely for an extended, or even indefinite, period. However, we remain skeptical that a significant number of tenants will end up with a truly remote workforce for any longer than they need to under their regions’ reopening plans. Indeed, after having announced that up to half of its employees would work from home within the next 10 years, Facebook recently signed a lease for 730,000 square feet in Manhattan’s West Side—in addition to another lease it signed late last year for 1.5 million square feet just a few blocks away.1
The decisions by certain companies to keep their employees at home for the foreseeable future do not necessarily reflect long-term strategic shifts. In many cases, these companies cannot fit more than 50% of their workforce in the office while maintaining social distancing, and many government guidelines and plans have been in flux with uncertain timelines. Finally, it’s worth pointing out that some tech companies are in the business of selling cloud services, online goods and apps, and therefore are in no rush to encourage their people to come back.
In the meantime, many of our own tenants are actively engaged in developing and executing return-to-office plans, the pace of which varies across regions. In many Asian countries, including China and South Korea, we have seen much of the workforce return to the office.
When employees return to the office, they will find that their environment has undergone significant changes. These may include heightened cleaning procedures in line with revised health guidelines, policies to ensure that sick employees do not come to the office, company-provided personal protective equipment and social distancing requirements. Employees may also notice new office layouts and upgraded features, such as spaced-out workstations with transparent barriers, no-touch elevator systems and new air filtration systems to circulate cleaner air. In fact, at Brookfield, we are piloting advanced air ventilation and filtration systems in our New York, Toronto and Calgary offices, with an eye toward utilizing this technology in all our leased office properties.