JLL: The office is here to stay but employee experience will be different, says JLL
Office demand and usage will evolve according to corporates’ changing needs in the COVID-19 world
VIETNAM, 22 May 2020 – Corporations in Asia Pacific are re-examining their commercial real estate strategies amid government-imposed lockdowns and work-from-home arrangements resulting from the COVID-19 pandemic.
According to JLL’s data, leasing activity softened with global volumes 22% lower than in Q1 2019 as deals were cancelled or delayed. Asia Pacific leasing activity, however, was down only 9% quarter-on-quarter in Q1 2020 and up 14% year-on-year. This has yet to filter through to vacancy rates in Asia Pacific, which were flat compared to a quarter earlier at 10.9%.
JLL also reported that for Ho Chi Minh City, there were 68,700 sqm of new spaces completed in 1Q20 and mainly from Grade B&C, bringing up the office stock to more than 2.3 million square meter. Grade A vacancy rate, recorded at 6.4%, was down 161 percentage points compared to 4Q19 amid the limited supply. Meanwhile, the vacancy rate of Grade B buildings witnessed a slight increase, from 6.4% in 4Q19 to 6.7% in 1Q20 due to the impact of new supply.
“The current situation poses disruption and challenges for the office sector. The way people view and use corporate real estate will change. However, we can expect the office to remain at the heart of employers’ occupational strategies in Asia Pacific over the medium-to-long-term,” says Anthony Couse, CEO, JLL Asia Pacific.
As companies prioritise the health and safety of their employees and implement social distancing to re-enter workplaces, changes to office real estate will be inevitable, according to a new report published by JLL. CEOs are re-examining strategies and may consider recalibrating the amount of space dedicated to traditional office space upon lease expiry, or even before.
However, despite current headwinds, the global real estate consultant believes the office is here to stay. In fact, in some cases the pandemic may lead to an expansion of office space, as companies try to increase physical distancing among their employees. Current office configurations may be modified, increasing the need for additional space. In doing so, occupiers may consider tapping into flexible space from third-party operators, alongside continued remote working for some employees.
“Work from home is a model that used to be popular only among freelance or information technology workers in Vietnam,” said Ms. Trang Bui, Head of Markets, JLL Vietnam. "The outbreak has allowed businesses to truly test this working model, a concept that has been discussed a lot before but hasn't been implemented on a large scale." Companies, managers and employees are now faced with what it really means to sustainably and effectively maintain work quality, collaboration and co-ordination, as well as social behaviours usually seen in the office - all the while being at home.
Despite a seemingly successful work-from-home experiment globally, offices will continue to be sought after in this region. Although the pandemic has shifted perceptions around the effectiveness of remote working, it has not presented a sustainable or optimal long-term solution for all corporates.
While remote working has been credited with providing employees with more flexibility and work-life balance, offices still play a central role in creating a space for employees to collaborate, interact and unite around shared values, boost staff morale and enhance productivity.
Mr Couse adds: “Today’s corporates operate in an increasingly fast-moving environment where innovation is key to retaining a competitive edge and sustaining company performance. Successful companies pride themselves on having collaborative spaces that drive excellence and innovation.”
As the needs of occupiers evolve, the primary change that will hit offices is the redesigning of spaces. There will be a focus on delivering the highest and most efficient use of square footage to meet an organisation’s objectives.
“The office, as we know it, will evolve. In fact, we have seen clients increasingly focused on sustainability, wellness and technology. Some have begun making environmental tweaks and upgrades to align with commitments of building trust and ensuring fit-for-purpose spaces. Owners and investors who can take advantage of this opportunity to think about long-term redevelopment plans and designing or re-fitting their facilities will benefit greatly,” says Mr Couse.
The flexible space and coworking sector may stand to benefit in the short-term as some present a compelling alternative to achieve short-and-medium-term expansion plans for existing occupiers looking for additional space.
Having a flexible business plan will align with certain occupier goals during the current environment, especially related to capital expenditure. However, corporates need to be diligent in selecting strong flex space providers, given projections around consolidation in the industry.
Meanwhile, some companies have been incorporating flexible spaces as part of their office portfolios to attract and retain top talent.
“COVID-19 is likely to accelerate the evolution of the office as most of the workforce prepares for re-entry. Ultimately, it is people who are the end-users of real estate. We think offices will remain central to their daily business life. Looking ahead, we believe that this is a resilient sector that will continue to draw long-term investor interest and confidence,” concludes Couse.
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JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $18.0 billion, operations in over 80 countries and a global workforce of more than 94,000 as of March 31, 2020. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.