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Post COVID-19: Re-entry to the Office

THE OFFICE

Post COVID-19: Re-entry to the Office

The subject on everyone’s mind: Post COVID-19, How do we handle re-entry to the office?

Jason Roberts of JLL New York walks us through the key concerns of re-entry to the office. From rent relief/deferment, to re-entry frameworks, the office of the future and everything in between.

JLL buy, build, occupy and invest in a variety of assets including industrial, commercial, retail, residential and hotel real estate. From tech startups to global firms, their clients span industries including banking, energy, healthcare, law, life sciences, manufacturing and technology. Jason’s focus has been and remains financial services clients with a focus on hedge, private equity and venture capital funds. So there’s no one better placed to advise on hedge fund office strategy.

Rent Relief / Deferment

The first question that was (and still is) on everyone’s mind is “why should I continue to pay rent when my office is not operational?” There are a number of correlated answers to this. While there is an executive order to shelter-in-place, office buildings are technically still open and operational albeit with a skeleton staff. If you wanted to go to the office, the short answer is that you can, so unfortunately the clauses that we would typically point to in the lease such as force majeure are not applicable. Additionally, landlords have made it very difficult for office tenants to obtain relief as many buildings have retail exposure at ground level, which, as we continue to read about in the press, desperately needs a lifeline. While assisting clients with these conversations, I have experienced landlords develop a laundry list of questions to be answered before they entertain any concession – such as proof of application to PPP, cutting of staff, reducing expenses, limiting executive comp and providing financial statements showing actual financial hardship.

Putting this all together, many occupiers simply say, “forget it” which brings us to deferment. The same logic applies here, however; in this instance, occupiers are agreeing to still pay the rent but at a later date by either amortizing the months of deferment over the remainder of the lease term or simply paying on at some point (first months back or at the back-end of the lease) when business hopefully returns to normal. Again, for many occupiers, the papering of the deferment and legal fees are just not worth the short-term benefit.

Basic Re-entry to the Office Framework

How should we be planning a re-entry to the office which inspires confidence to employees around safety and productivity? We are splitting this up into two buckets: Occupier and Landlord.

From the occupier standpoint, it starts with developing a task force who will oversee revised protocols around rearranging seating layouts, directional signage to avoid bottlenecks, welcome kits including PPE (face coverings) and increased cleaning. The next phase is the actual re-entry, what percentage of the workforce will come back and how the initial groups will be staggered. The general consensus has been an A and B shift which will rotate on a weekly basis, allowing for a deep clean of the premises every weekend.

Regarding landlords, it starts with traffic management in the lobby, elevator ridership (limited to 4 people), cleaning and air quality with increased amount of outside air and upgraded MERV 13+ filters. The key for both is limiting high touch areas like door handles, elevator buttons, faucets, and soap dispensers.

With these two perspectives, we have the building and occupiers space addressed, but what about commutation to and from the office? That remains a major concern as many NYC office workers take public transit and who wants to be on a crowded subway, bus or train and possibly become exposed to potential viruses carried by complete strangers?

Given the delays in the list of the shelter-in-place guidelines, it seems that any considerable re-entry in NYC will be pushed to post Labor Day as occupiers use the time to watch the successes and failures of other markets currently returning and cautiously trickle back into the office. No one wants to be the first and no one wants to get it wrong.

Impacts on the NYC office market

In the short-term, sublease space will put downward pressure in certain submarkets depending on tenancy exposure. Given the rent collection numbers that we saw for April and May, it looks like Midtown will emerge the strongest (high 80’s % to low 90’s %) while VC backed tech focused markets like Midtown South (think Flatiron, Chelsea, Madison Square, Union Square with high 50’s% rent collection) will emerge the weakest.

What will the Workplace of the future look like?

The verdict is still out on how much of a long-term impact Covid-19 will have on the workplace. There is no doubt that physical distancing and work from home (WFH) will be a staple of our everyday life in the short-term, at the very least. I am in constant contact with our Workplace team and Architects/Furniture vendors to understand how occupiers are thinking about the future.

What I will say is that this provides for an enormous breakthrough in technologies and our dependence on them to make everyday life easier with more touchless experiences. Your phone and perhaps even your voice will become more important than ever.

Conclusions

This is all still a work in progress as we wait to get hard data from our client’s re-entries and learn more about definitive plans of their office space needs as they re-imagine their culture and workplace. With that, I will continue to put together content for specific concerns that occupiers have in the coming weeks as this continues to develop and unfold. Personally speaking, I am excited for the opportunity to get back to the office and jump-starting the social aspect of business.

Sure, technology has come a long way in allowing us to be productive, but there is a massive piece of the human aspect of business through in-person experiences that cannot be replaced by Zoom calls. In fact, feeling “over-Zoomed” is an actual phenomenon these days as many are experiencing technology induced fatigue and missing out on human-to-human interactions to break up their workday.

According to a recent survey conducted by Gensler, “Despite their technological preparedness for mobile work, younger workers report a far more challenging experience working
from home than their older peers. They are less likely to feel accomplished at the end of a typical day. They are less aware of what’s expected of them and how their work contributes to organizational goals. And they report struggling most to maintain work–life balance and avoid distractions at home.” As a mid-30’s millennial, I have a strong feeling, given some of the surveys I have seen, that I am not alone. How do you feel about Work from Home / getting back to the office?

 

Jason Roberts
JasonW.Roberts@am.jll.com

To read more advice on returning to the workspace from JLL click here

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