Less is more? How the office property sector must adapt to work habits changed by the coronavirus

While predictions that the office is on its way out are wide of the mark, the sector must reinvent itself for the post-pandemic world

A reduction in demand for office space and a preference for low-density buildings and office layout may be trends that will outlast this outbreak

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A building in Hong Kong. Demand for office space could fall in the wake of the coronavirus pandemic, with older, lower-specification buildings with high occupancy density most vulnerable. Photo: Bloomberg

Published: 11:00am, 26 May 2020Updated: 11:19am, 26 May 2020

Almost overnight, the coronavirus altered the way people live, work and play. Lockdowns and social distancing measures have upended many industries, accelerating trends that were disruptive before the virus struck and presaging far-reaching changes in behaviour.

Nowhere is this more apparent than in the real estate sector. As consultant McKinsey & Company noted in a report published last month, properties where “the degree of physical proximity among users” is the highest “have been the hardest hit”.

Equity investors have penalised retail and hotel and resort-focused real estate investment trusts, or Reits, listed on the benchmark S&P 500 index, with their share prices plunging 48 per cent and 50 per cent respectively since February 21. Reits specialising in logistics properties, on the other hand, which have benefited from the virus-induced surge in online shopping, have fared significantly better, falling only 13 per cent.

However, the verdict of investors has been less clear when it comes to the office sector. Reits focused on offices have lost 36 per cent. This is mainly because there is less consensus on the future of office working in a post-Covid-19 world.

A host presents goods for sale online in a studio in Guangzhou city, southern China, where the online retail market is one of the few sectors that has not suffered from the coronavirus pandemic. Photo: EPA-EFE

According to the results of an internal survey published by Savills last week, while more than 80 per cent of the firm’s research heads across the world believe the post-pandemic impact of the virus on retail property will be negative or slightly negative, nearly 90 per cent expect the impact on offices to be neutral or slightly negative.