COVID-19 Effect: Corporates May Cut Down Real Estate Costs by 20% To Counter The Effect On Economic Activity

As employees get ready to return to their offices, the corporate real estate world is likely to see significant changes with respect to the way they operate as the world weathers through an unprecedented crisis. With social distancing and new hygiene standards being the order of the day, the idea of a typical modern office is all set to change

With the announcement of Unlock 1.0, organisations are looking to reduce corporate real estate costs by 20 percent at the very least to counter the effect of the dip in economic activity.

Corporates are also looking at emphasising hygiene and precautionary measures of social distancing to their employees as per the recently issued guidelines.

This is because in the beginning, only a fraction of staff strength must take the plunge to visit office premises physically and that too based on the business requirements considering that the virtual way to work is the first preference.

A change in the traditional office setup

While organisations move to normalise work with the announcement of Unlock 1.0, a large number of organisations continue to see immense value in continuing with the virtual working setup since it optimises their rental and administrative costs significantly, in addition to the savings on the commute time would help employees manage their time more effectively as well.

As per the Deloitte CFO Actions in Response to COVID survey, more than 65 percent of the respondents have said that they are looking at reduced spending and enacting alternate arrangements to counter the impact of COVID-19.

This may also, very well mean, a change in the way traditional office spaces would be priced considering the CBDs may become decongested and we may see an uptake in office space absorption in satellite spaces at a significantly lower cost than the CBD. On an overall basis we see a decrease of office space intake in the range of 30-40 percent in 2020 as compared with 2021.

Other areas of cost savings in the form of a review of the existing contracts, optimising the real estate footprint and initiatives such as consolidation and building shared service center capabilities are being seen as major cost saving drivers.

A shift from sharing to exclusivity

Over the last few years, the concept of shared office spaces has seen a huge uptake. There have been significant arguments as to how shared office spaces will soon wipe out the traditional office setup completely and the demand has seen a number of overseas and domestic players setup shop.

With the COVID-19 crisis however, the scenario may see a drastic change as exclusivity becomes more important from a hygiene perspective. As people get back to work albeit in a reduced manner, the employee would much rather be working out of an exclusive office space than a shared premise.

Growth in the shared office space sector may see a significant downturn in times to come and this may also be further fueled in the flexibility to exit without much consideration. There may also be a significant correction in the price/seat charges (a very minimum of 10-15%) to cover for this reduced demand.

Urban Mobility

Urban mobility and availability of public transportation has increasingly played an important role in space selection for organisations in the Indian context. Well-connected office spaces have long attracted premiums as compared to those in locations with lesser connectivity options.

With the use of public transport likely to see a significant downtrend in the near future with people preferring private transport in the light of hygiene requirements, this long-standing consideration may see significant dilution.

Compact, Smaller and differently focused office spaces

As the size of office spaces continues to shrink, some of the factors which will see significant focus are as follows:

Design changes

Standards for general office density norms may undergo change as ever-increasing focus on improving density and optimisation of space may see trend reversal. Other design considerations such as a re-assessment of the flow of personnel in an office space clubbed with changes in now near redundant spaces such as meeting rooms etc. may cause our office spaces to look very different from before.

We may also see a change in the materials being used for office spaces. For example, high density carpets may pave the way for laminated flooring or vitrified tiles; anti germ coat paints may be used more instead of distemper paints which can be cleaned more efficiently.

Further adoption of automated cleaning systems may be on the anvil, with the use of enhanced equipment (UV handheld devices, quick fumigation techniques) which may impact the way we use our common spaces. Cyber security will see increased focus as organisations will be worried about the security of their systems given the uptake of remote working.

Increased focus on cleanliness

Cleanliness is likely to become a top focus for office spaces. Organisations will relook at their cleaning routines and frequency of deep cleaning of certain parts of the facility like door handle, lift switches etc. There will be also be increased focus on sanitizing commonly used spaces such as meeting rooms, cafeteria, gymnasium and other high traffic areas.

There is likely to be growth in use of automation to ensure higher levels of cleanliness, such as use of automated cleaning and sanitization systems, automated doors, voice activated controls instead of switches for lights, air-conditioners and elevators. Managing indoor air quality and use of more specialised filters and air purification systems will gain focus.

Increased emphasis on personal hygiene

Screening of employees and visitors, for body temperature and any signs of illness, may become the new normal. We could soon find that declarations relating to recent illness, recent travel details and such other details would be become mandatory for visitors.

Additionally, organisation could actively discourage or even limit/restrict entry of visitors and introduce strict rules relating to entry and movement of visitors, especially visitors from quick pickup and delivery service providers.

There would be reduction in physical interactions and a re-do of the social norms such as handshakes. We could also see a significant increase in use of sanitisers and tissues/hygiene products.

Increase in training and awareness

Training and awareness related to hygiene, conduct, new social and business norms is set to become as important aspect as employees return to work. With changing etiquettes, it is expected that there would be a marked difference in interactions and general business mannerisms which would mandate additional training for employees.

The facility management staff would also need to be trained to focus on use of new devices like body temperature monitoring systems, responding to emergencies, isolation protocols and personal protection. New operating procedures around cleaning may see uptake in the use of modern equipment and lesser reliance on human effectiveness.

As details emerge, the cost of such Covid-19 related compliances and retrofitting may range between Rs 50 -120 per sq ft assuming less than 50 percent occupancy levels and depending on size of office spaces.

In conclusion, it is safe to assume that organisations which provide for safe spaces and working environments will be the first choice for top talent.

As businesses resume operations, there are bound to be ups and downs but historically crises have caused us to become more resilient in our resolve. Growth, sooner or later is inevitable and the sooner we prepare ourselves for the growth cycle, the faster one can expect to grow.

(Source: Moneycontrol)