Office space demand continues to fall further in the second quarter as more U.S. companies allow employees to opt for a work-from-home setup.
For the already-declining market of office space, the emergence of new coronavirus cases in the U.S. continues to exacerbate the sector’s woes. The first month of the pandemic had forced employees to allow a work-from-home setup, yet with the growing number of new cases, it looks like the trend will continue indefinitely.
U.S. companies to reduce office space
In a report first published by the Reuters, over two dozen of huge U.S. firms revealed that they are looking to slash their office space as part of their cost reduction strategies. The plan is said to roll next year, and, as per Reuters’ analysts, it is likely the first cost-reduction measure.
Some of the companies involved are Sleep Number Corp. (a bedding company) and Halliburton Co. (an energy company). The bedding company is said to slow down its total square footage, while Halliburton is planning to shut down over 100 facilities.
State Street Corp., a financial services company, also intends to reduce its office space as most of its employees decided to continue working from home. And just recently, Google announced its extension work-from-home policy, allowing its employees to opt to work safely and comfortably in their homes.
“You should expect and hold us to a much lower footprint starting quite soon,” CEO Ronald Philip O’Hanley of State Street told the Reuters during an earnings call.
On the one hand, it appears like major U.S. corporations’ move to cut down office space is not only about cost-reduction and their employees’ safety. Danny Ismail, a lead analyst at Green Street, said that remote working turned out successful because the majority of the employees who experienced it were satisfied with the setup.
For that reason, he anticipates the trend to become permanent. Yet he clarified that some will still prefer working in an office, while others would not.
Office rental market falls further
The weak demand triggered by the health crisis had dragged the office space rental market to drop further. In a new report conducted by CBRE, office rental square footage plummeted by 21.5 million square feet and is the lowest downturn since the Great Recession.
“Leasing activity in the Q2 fell by 44% year-over-year, increasing the national office vacancy rate by 70 basis points to 13%,” CBRE analysts wrote in the report.
Last month, Morgan Stanley predicted the sector’s deeper decline as well. He said work-from-home policies would prompt the increase in vacancy rates in office spaces, citing San Francisco will hit seven to nine percent vacancy rate while New York will climb as much as 10% to 12%.
Danny Ismail of Green Street also shares Stanley’s prediction. Based on a report published by Green Street Advisors, demand for office leasing will dive by 10% to 15%
“The notion that a well-located office building full of highly-paid workers in or near a dense, expensive city is the best way to operate a successful firm, has been challenged by the acceptance of remote work,” Green Street Advisors wrote in the report.