Redefining the world of work: Office real estate post-COVID

In the wake of the COVID-19 pandemic, the commercial real estate landscape has undergone a significant transformation. As businesses adapt to new ways of working and prioritise employee safety and wellbeing, as well as global recessions, the sector has had a tumultuous past year.

However, the latest research and industry insights paint a slightly more optimistic picture, pointing to continued demand for high-quality, modern spaces that foster innovation, collaboration and employee wellbeing.

A few key themes that have emerged:

Rise of hybrid work models

One of the most notable changes in the post-COVID era is the widespread adoption of hybrid work models. Many companies have realised that employees can be productive while working remotely, however still acknowledging the value of in-person collaboration, and thus are embracing flexible work arrangements.

This shift has raised questions about the future of office spaces. While some companies are downsizing their office footprints, others are reimagining the workplace to support collaboration and innovation. Research shows that 68% of companies are focusing on increasing office attendance, while 66% have policies that enforce office attendance (2023 APAC Office Occupier Sentiment Survey, CBRE).

According to JLL’s 2023 Office Sentiment Survey, while 16% of occupiers say they are considering reducing their space, this is balanced by 14% saying they are looking to increase their space. This is testament to the changing needs of businesses and how they use their office spaces.

In CBRE’s 2023 APAC Office Occupier Sentiment Survey, these needs are increasingly centred on flexibility, technology infrastructure, and appealing amenities that support hybrid, modern workforces, and the productivity and wellbeing of those workforces.

Flight to quality

The divergence between prime and secondary office space is widening as the ‘flight to quality’ becomes more notable in commercial property, and especially in the office sector. Recent research shows a strong demand for high-quality, modern office spaces, as businesses ramp up their efforts to attract employees back to the office (JLL Office Sentiment Survey, 2023).

At PMG, this flight to quality has been evident in lease renewals and considerations, as tenants have shown a preference for sustainable, modern facilities that support the wellbeing, work-life balance and productivity of staff, even if these facilities come at a higher cost.

This is also reiterated in the research, which shows increases in rents alongside the decrease in vacancies in New Zealand's main centres. Employers are seeking properties that amplify their businesses in the battle to attract and retain top talent.

Health and safety

Health and safety concerns have become paramount in the wake of the pandemic. Investors in office real estate should be prepared to address these issues. Tenants are now looking for properties that prioritise health and safety measures such as improved ventilation systems, touchless technology, and ample space for social distancing.

When evaluating potential office properties, consider their readiness to meet these new standards. Properties that have already invested in health and safety upgrades may have a competitive advantage in the market.

Multi-purpose collaboration spaces

As some office spaces become vacant due to remote work trends, investors are exploring opportunities for repurposing and adaptive reuse. Converting office spaces into mixed-use developments, residential units, or creative coworking spaces can breathe new life into underutilised properties.

However, vacancy trends have been leaning more positive in New Zealand’s main centres over the past two quarters, showing vacancy rates at 2.1%, uptake of approximately 1,000sqm of space and supporting the ongoing sentiment of increasing demand for high-quality office space, especially those located near the waterfront (JLL Vertical Vacancy Review Quarter 3, 2023).

Property owners and investors can capitalise on the unique opportunity to buy distressed office assets at lower rates than in previous years and add value through creative repurposing, retrofitting and future-proofed improvements.

Location, location, location

In real estate, whether residential or commercial, location is always a critical factor. However, it has taken on new significance post-COVID. As companies rethink their real estate strategies, they may prioritise locations that offer easy access to suburban and urban areas, reduce commuting times, and provide a sense of safety and wellbeing.

Investors should consider properties in areas that are likely to benefit from these location preferences. Proximity to transportation hubs, green spaces, and essential services can make an office property more attractive to potential tenants.

The office real estate sector has experienced a seismic shift in the aftermath of the COVID-19 pandemic. While there are still many challenges ahead, we could potentially see opportunities emerge for investors who are willing to adapt and innovate. By staying attuned to the evolving needs of tenants, prioritising health and safety, exploring repurposing possibilities, and selecting strategic locations, commercial property investors can thrive in the post-COVID office real estate landscape.

Disclaimer: The information in this blog is of a general nature and was current on 1 November 2023. It is not intended to be regulated financial advice for the purpose of the Financial Markets Conduct Act 2013 and does not take your individual circumstances and financial situation into account. PMG does not provide financial advice. Please seek advice from a licenced financial advice provider before making any investment decisions.