In early May, Twitter Founder and CEO, Jack Dorsey, announced that employees, would be able to work remotely, even after the social distancing guidelines have being lifted. Other tech giants such as Facebook, have followed similar paths. Mark Zuckerberg announced that 50% of Facebook’s staff could be working remotely in the next 5 to 10 years.
So with most office space still shut down throughout the country and world, what does this mean for office commercial estate investors moving forward, both now and in the future?
Even now after restrictions have lifted, the majority of office workers haven’t returned to the office. There are obvious economic implications for this for local business. For example the office blocks around Baggot Street are still mostly empty, with only a skeleton staff working and one can see the effect on local retailers , restaurants and bars , because of the huge decrease in footfall. How long will the companies renting these office blocks, be willing to pay rent on empty spaces and even if they are will to pay rent today, that doesn’t mean they will be willing to renew their existing leases when they are due to expire, at least at the same footprint in the past.
So aside from the tech giants implementing a more permanent remote working policy for staff, other companies sectors are looking to do the same. A recent study carried out by PwC, found that over 60 per cent of Irish companies are looking at ways to make remote working a permanent option for their employees. Companies such as Allied Irish Bank, have 7,500 employees working from home and may have plans for more permanent work from home implementation in the future for a sizable percentage of their staff. Food company, Glambia’s office based staff are working from home.
Other tech companies such as Shopify, Coinbase, Upwork and Fujitsu also recently announced plans for employees to be able to work from home permanently, even after restrictions have lifted. Even the CEO of US banking giant Morgan Stanley, James Gorman, was quoted in April, saying the firm could operate with “much less real estate” and talked about a future where employees were able to spend days, weeks or even months working remotely outside of the office.
Staying Stateside, according to a recent survey carried out by Gartner, 74% of CFO’s surveyed, plan to move at least 5% of their current workforce to more permanent remote positions and at lease 25% plan to move at least 20% of their workforce to remote working. In the same survey 22% of CFO’s reported to be planning to make reductions in office space expenses over the coming months or they have already made office space reductions.
In Ireland, we may a shift away from clustering all talent in major cities and allowing more employees to work remotely, where ever they may be. Dublin, for example, has accounted for the vast majority of tech jobs created, which has driven the cost of living up significantly in Dublin the past 15 years. As a result employers have had to pay their employees higher and higher wages, just to keep up, so that those employees can afford to live in Dublin. The rental sector in Dublin is at breaking point, where 2 bed apartments in the city centre rent anywhere from €2,000 to €3,000 per month. Many young educated workers would like to welcome the ability to move to an area outside Dublin, with a lower cost of living and still be able to keep their job in the process.
With job losses and layoffs becoming the norm, we might see a quicker execodus from Dublin, if employees of big companies start working remotely from a different city or town. In a senario where employees work remotely in different parts of the country, this could have a significiant positive impact on employers. Salary expectations will be lower for talent outside major cities such as Dublin and Cork and companies will be able to attract talent, that might otherwise not have had wanted to uproot their families and move across the country.
Last week, the Irish Government launched a public consultation process on guidelines for remote working, which has become a huge necessity during the recent pandemic lock-down. The consultation follows a report in 2019 which the government outlined guidelines on remote working and placed a focus on fostering participation in the labour force thought flexible working solutions. The guidelines are intended to address issues arising from remote working such as employment rights, data protection, security and health and safety.
In May, Mark Zuckerberg has actually already talked about reducing salary costs, by hiring remote workers in other less expensive parts of the US. The same can be said for Ireland. Many other companies will follow suit, if they are able to find qualified talent in another area of the country and potentially pay that talent a little less, to decrease payroll costs, whilst still keeping those employees happy and well paid. With that said, even if remote working does ramp up in the coming moths and years, smaller satellite offices might also see an increased demand in small towns and villages around Ireland along with city suburbs.
Whilst there has being lots of talk about remote working, employees might actually need a place to go, if and when, they decide to come back to an office. So instead of taking away the need for office space, this could ideally shift the footprint demand from offices being clustered in major cities to more city suburbian outskirts and satellite offices to smaller towns and villages around Ireland, combined with less central city office space and increased use of virtual office and flexible office workspace in Dublin and other major cities around the country. This could spell trouble though for owners and devolopers of commercial properties in central cities.
During the recent lock down, many companies have seen how virtual meetings and communication platforms like Zoom and Slack, have made it extremely easy for knowledge workers to be able to stay in touch regardless of where they are located. Now more than even this could be seen as a logical progressive shift for many firms especially technology and software firms, that don’t rely on their employees to work on manufacturing or physical products.
For many employees remote working, virtual offices and satillite offices is also a really big win, as these employees are able to reduce or elinimate commute times and often times are able to set the majority of their schedule, as far as when they want to work, around other commitments that they may have.
So with all of that said, it is most likely office vacancies will increase over the next several years. Office development projects will likely be put on hold indefinitely and office rents will continue to soften. The current economic climate, will most likely cause a shift in leasing trends in office long term. Office leases are often commonly signed with lease terms around three to five years. With office space requirements up in the air, then they have been at any time the last decade, this will change the duration of leases. More companies will only want to sign short term 1 to 2 year leases, whilst transitioning to remote working conditions for employees. Smaller and medium firms will also shift to having no leases, preferring to engage with co working space, serviced offices and virtual office solutions.
At Dublin Mail Drop, we have seen an increase since April, of Irish and international firms downgrading their office space requirements, especially in Dublin and setting up virtual office services and/or with a mix of smaller office space or setting up co-working space. With increased technology and artificial intelligence going to dominate the workplace, the requirements for virtual offices will only grow over this decade.