Why Asia’s office markets have less to fear from the Delta variant than those in the West

The much-heralded return to the office has been put on hold in the US, amid a surge in Covid-19 cases
But the virus has caused less disruption to workplace strategies in Asia, where employers and employees prefer not to blur the work-life boundary

Nicholas Spiro

Published: 8:15am, 14 Sep, 2021

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The much-heralded return to the office has come to a halt. The rapid spread of the highly infectious Delta variant has forced many high-profile multinational companies to delay plans to get staff back to their desks.

The postponement of return-to-office dates is most apparent in the United States, where cases are now averaging almost 150,000 a day, on a par with their level midway through the brutal second wave at the end of last year.

A sharp slowdown in vaccination rates has contributed to more stringent precautions. On September 9, Microsoft became the latest big company to shelve plans to bring staff back to its US offices, joining other leading firms, such as Google and Ford, that have pushed their re-entry plans into 2022.

Office utilisation rates in New York remain stubbornly low. Only 23 per cent of workers were back at their desks in early August, data from building security company Kastle Systems showed.

In London, where many firms are introducing hybrid models of working that combine some days at the office and some at home, offices were only at 11.5 per cent of their capacity on average in early August, according to Remit Consulting. Although financial services firms have been more aggressive in trying to bring staff back, hybrid arrangements are becoming the norm.

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However, in Asia, the impact of the pandemic-induced shift in working patterns on the performance and outlook for the office sector has been relatively benign.

While the region’s economies have been hit hard by the Delta variant – whose effects have been exacerbated by growth-sapping “zero-Covid” policies and low vaccination rates in many countries – the virus has caused less disruption to workplace strategies.

A report published by JLL this month noted that in July, when the Delta strain was spreading rapidly across the region, office re-entry rates were above 70 per cent in Beijing, Shanghai and Hong Kong, and between 30 and 70 per cent in Seoul and Tokyo, where vaccination rates are lower than in the leading office markets in Europe and the US.

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Sam Harvey-Jones, head of occupier services for Asia at Colliers, said Asian workplace strategies during the pandemic “have not mirrored what we have seen in the Western world”.

One of the main reasons for this divergence – and a key theme in office occupier and investment markets since the virus struck – is the importance of the domestic tenant base.

In Asia, corporate cultural practices differ markedly from those in the West, a factor that is most apparent in markets where the occupier profile is heavily weighted towards domestic firms, such as China and South Korea.

While multinationals’ workplace policies are set at global headquarters and implemented on a worldwide basis, Asian companies are more resistant to changes in working patterns that blur the boundary between work obligations and personal lives.

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Deeply ingrained beliefs about the role and function of the office – many Asian countries, notably Japan, have a strong culture of presenteeism and are quite traditional when it comes to workstyles – and smaller homes, which lack the privacy or level of connectivity needed to work remotely, make homeworking a tough sell for most Asian firms.

The findings of a survey on the future of the office conducted by CBRE in May, and published in July, are revealing. Even with the wider adoption of hybrid work models, most firms in the region expect their staff to work remotely only one day a week.

What is more, in a sign of the extent to which Asia-based companies’ workplace strategies differ from those of Western multinationals, Asian firms strongly favour fixed seating, as opposed to the flexible or unassigned seating encouraged by Western companies as part of the shift to hybrid working.

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Another key finding, and one that helps explain the resilience and appeal of Asia’s office sector, is the stronger appetite for expansion shown by Asian occupiers. Unlike multinationals, many of whom are reducing their office footprints, the majority of Asian companies surveyed – especially those in the technology sector – expect to grow their property portfolios in the next three years.

In China, occupier demand is already buoyant, with the country accounting for over half of the take-up in the region last quarter. The attraction of China’s domestically oriented leasing market is one of the reasons the nation is on course to overtake Japan this year as Asia’s most actively traded commercial real estate market.

Indeed, if anything, the pandemic has reinforced Asian firms’ workplace practices, accentuating more traditional working patterns in the region. Moreover, unlike in Western economies, the views of employers and employees on working arrangements are closely aligned.

Renewed restrictions and lockdowns caused by the spread of the Delta variant have made most Asian occupiers even more sceptical about the benefits of remote working. “It has played into the hands of the office sector,” said Harvey-Jones.

Even in London and New York, office nostalgia has been much more apparent since the beginning of this year. This begs the question whether the new normal for offices will end up being closer to Asian companies’ working patterns than the hybrid models increasingly favoured by multinationals.

Nicholas Spiro is a partner at Lauressa Advisory

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