If there is one trend that has grown exponentially during the pandemic, it would be the astounding increase in the American workforce working from home. As a result of this, many companies have shifted their approach to their business. More and more companies have even announced that the shift to a remote working environment will remain even after the current pandemic is under control.
An example of this was observed in August when the company Pinterest announced that it would pay nearly $90 million to get out of its lease on 490,000 square feet of unbuilt office space in San Francisco, CA. This sent shock waves throughout the commercial real estate industry. The message sent with this move was clear – Pinterest realized that its company can be equally productive with its employees working from home and meeting virtually over platforms such as Zoom, WebEx, etc… Obviously, they believe this enough that it was worth paying nearly $90 million to break its lease!
Where is the office space market heading?
As it stands now, about 14% of office space is vacant across the country, up from 12.8% last year. Vacancy rates are expected to reach at least 17%, if not higher by 2022. This level of vacancy rates in this sector has not been seen since the Great Recession. Furthermore, rents are expected to drop by approximately 5%.
High-rise buildings in big cities that depend on mass transportation are expected to suffer even more than smaller cities as residents and companies flee. With this said, all of these predictions will depend on how quickly COVID-19 vaccines are made readily available and how well we can control the pandemic.
In closing, many people predicted the demise of some big cities such as New York after the 9/11 tragedies. With this said, over time the city built back and business resumed. Although 2020 has been quite traumatic for the entire world, these effects on office space may result in a temporary pullback of a year or two as well. Time will tell, but hopefully the entire world will remain more vigilant about personal hygiene and tactics to reduce the possible transmission of any pathogens…