How will COVID-19 Change the Demand for Office Space?

Working remotely at home has become the norm since we have all had to deal with COVID-19. The pandemic has forced us into a new era of profound change in the way we work. But, how does this influence the office market? Will the demand for office space decline after COVID-19? Are we going to be facing empty business parks and permanently dark premises in our cities?

In a recent discussion at L1mburg Centraal about how we can avoid empty office buildings, Piet Eichholtz, Professor of Real Estate Finance at Maastricht University, argued that real estate owners and financiers will eventually need to adapt to the new situation. In Eichholtz’s opinion, we don’t need to be afraid of ending up with ghost-cities as he believes that there are still many opportunities for office premises. According to Eichholtz, those opportunities come from a different perspective: “what we see is that people now need to work remotely from home. People will take other considerations into account when thinking about where they are going to live. If we need to continue working from home, then we need more space. And that is prohibitive in cities like Amsterdam and Rotterdam”. According to Eichholtz, people tend to relocate further away from the Randstad. North or Central Limburg might prove to be interesting alternatives. When people opt for living accommodation in, for example, Venlo or Weert, they can get twice as much as space for the same budget as they would get in, for example, De Pijp in Amsterdam. Eichholtz believes this will create an opportunity for unused buildings. They can be transformed or redeployed for much-needed housing.

In another recent interview at BNR Newsradio, Nils Kok, Associate Professor Finance and Real Estate at Maastricht University, says that it’s quite realistic that one third of the office market will be vacant as soon as the contractual occupancy comes to an end. Lease agreements tend to last about five years in The Netherlands. When this term ends, companies intend not to extend their contracts, especially given the fact that the current physical occupation is only 10-15% of what we normally see. Deloitte already did this for four different venues in the UK. Kok believes this might happen in the Netherlands as well. According to some predictions, there might even be a 40% drop in demand for office space in the future. Kok: “I think this is too pessimistic. The Netherlands is still a very interesting location, especially when you consider the impact of Brexit. 10-15 years ago, we already saw an increase in office building vacancy occurring in the periphery, even in Rotterdam where the vacancy rate was already higher than in Amsterdam. But, not in places that would be occupied anyway, like the area around the Central Station in Utrecht and Amsterdam South”.

Thus, the question arises: what will become vacant and how can it be re-purposed through investment? Empty office buildings could be a solution for the tremendous housing shortage in the Netherlands.  Quite a few office buildings have already been transformed into hotels and apartments, especially in the greater Amsterdam area. Buildings like the Edge in Amsterdam, are very sustainable and have an A++ label. There’s quite a lot of demand for that. However, most of the market cannot be compared to the Edge. Here, the energy-label-discussion comes in. “There is a huge part of the market that has energy label D which has older air treatment systems. Here, we see the vacancy rate increasing”, says Kok. No investments have been made in these buildings for a long time. Now is the moment to do so.

Although agreements on socially distance routing around buildings and staggering working hours could be a solution to make offices COVID-proof, Nils Kok doesn’t believe that people will want to go back to the office if they don’t feel comfortable. Air quality might be one of the main bottlenecks.

Kok has researched the impact that a healthy office environment with good air quality and good light has on employees. The employee’s perceived experience and productivity increased significantly by 30%, and their sick leave decreased by 2%. So, can we say that buildings that don’t take account of our health will eventually disappear from the market? Kok is clear about that: “buildings that do not meet the air quality and routing requirements will have to invest. Otherwise repurpose, renovate or demolish”.

Discussions around the changes in how we use office space during and post-COVID times will continue. However, the opinions and expertise of people like Piet Eichholtz and Nils Kok, allow us an opportunity to think differently about the situation. Office buildings that are no longer fit for purpose do not necessarily have to be written off. They deserve a second chance, and could be repurposed as residential housing. But, project developers will need to take air quality and routing into account if they are to be successful.