With many in Capital Region still working remotely, future office space configurations remain unknown

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Categories: -The Daily Gazette, Business, News

The office environment has changed markedly through the COVID pandemic. How sweeping and how enduring those changes are should become more apparent in the next few months.

Some employers may require everyone to come back to the office when a vaccine is developed or the crisis otherwise ends. Others may decide the cost savings and efficiency of remote working are too great to pass up.

But many expect to see a hybrid approach, with a mix of on-site and remote workers, similar to what now exists in many workplaces, seven months after the pandemic took hold in New York state.

Several people in the economic development and finance fields shared their thoughts with The Daily Gazette this past week.

Richard Sleasman is Albany president for CBRE, the largest commercial real estate services firm in the world. He said the increased number of vehicles in workplace parking lots and on the roads at rush hour compared with this past spring indicates there are fewer people working at home but there’s been nowhere near a full return to the office.

Nor has he seen any consensus on whether the return to the office will be complete or permanent.

“Generally speaking, what we’re seeing is there’s an earnest effort to have the discussion,” he said. As a result, there has not been a seismic shift in the cost or terms of leases, as some companies delay decisions to see what 2021 holds.

CBRE-Albany statistics show an 11.5 percent vacancy rate and $18.90 per square foot asking price for office space in the Capital Region in the first half of 2020, which is slightly lower and slightly higher, respectively, than the second half of 2019.

The first half of 2020 saw the greatest impacts so far of the COVID crisis — not just peak infection and death rates but soaring unemployment and stay-at-home orders for all non-essential employees in New York. Sleasman cautioned that the time window was too small to produce a noticeable impact on the rent and vacancy rates reported in CBRE’s first-half summary.

There was talk early on that tenants might be unable or unwilling to pay for office space during the height of the pandemic, he said, but that concern appears unfounded at this point.

“What you saw was a lot of people tying to buy time back then with restructuring,” he said. That would include negotiations for rent reduction in return for a lease extension.

This had the dual benefit of reducing the tenant’s expenses while revenue was suffering and giving another year to decide whether to opt for a smaller space for their workforce. Landlords, meanwhile, benefited by getting a delay before potentially having to find new tenants.

Ray Gillen, economic development leader for Schenectady County, said the broader sector of commercial real estate is very mixed. He pitches companies on relocating to all different types of space in and around Schenectady.

Demand for industrial space is steady, warehouse and logistics space is red-hot and office space is on hold, he said. Some experts predict decreased demand because employees will work from home, others predict increased demand as companies add more space to spread out their employees. But neither is happening yet.

“There’s just kind of a wait-and-see attitude on offices,” he said.

Mark Eagan, longtime leader of the Capital Region Chamber and now also president and CEO of the Center For Economic Growth, said the change in workplace attendance amid COVID was huge and longer-lasting than expected.

His sense is that national companies tended to make blanket decisions across their geographic reach, without considering that a particular market might have a very low infection rate, while local companies based their decisions on the conditions facing their workforces and communities.

They’ve got a range of options now, as they decide whether they need to retain their on-site workspace.

“From my perspective, I think the answer is yes, but I don’t know if they need the same lease or the same amount of space,” Eagan said.

It’s much harder, he said, to instill a company culture in a new employee who’s sitting at home.

That said, employers might consider a variation on the co-working concept, Eagan said. Rather than have 50 desks for 50 employees, they might have 25 desks for rotating sets of on-site workers, if the company decides to go with the on-site/off-site team approach.

They could reduce the need for square footage, provided those 25 desks weren’t compressed too close together.

“I think for a lot of companies it’s too soon to know,” he said.

Colonie-based Pioneer Bank has a loan portfolio in office and other commercial space, so it has a direct interest in the question. It also faced the issue itself, as it kept an essential 240-employee business running during the COVID lockdown.

CEO Tom Amell said Pioneer is actually running into a space squeeze now because its employees need to be kept six feet apart as they end their work-at-home stint.

He’s fully aware of the continuing speculation about the future prospects of in-person workplaces.

“One contingent says office space is doomed because the world is going to remote work,” he said.

He’s of the opposite opinion for a number of reasons, including that remote working doesn’t foster the collaboration and company culture that Pioneer values and that he thinks most companies need. So the market for office space will rebound, Amell predicts.

“Now, I don’t know how long that’s going to be,” he added.

Susan Hollister, Pioneer’s chief human resources officer, said remote work was a good temporary solution for the banking company during the crisis — small on-site teams could run the drive-through lanes at branches and handle secure wire transactions at the office while everyone else worked from home. Special arrangements could be made for wealth-management clients who wanted in-person consultations amid the stock market gyrations earlier this year.

New employees were recruited, interviewed, hired and brought on board in an entirely paperless and all-virtual process, Hollister said.

So Pioneer could revert quickly if there’s a second wave of the pandemic.

“We’ve learned a lot though this so we know we have the ability to operate remotely,” Amell said.

The company just doesn’t want to, he added.

National surveys of workers have found varied opinions:

  • A Harris Poll in mid June found 78 percent of employed adults were happy with their employers’ return-to-work plans.
  • In July, a KPMG worker pulse survey found that 64 percent of workers want flexibility to work remotely at least part of the time. However, among those who can transition back to the office, 82 percent are satisfied with their employer’s plans for bringing the workforce back in.
  • A second KPMG survey, in August, found high levels of satisfaction and engagement in those working remotely at least part of the time. But there also was widespread sentiment (among on-site and remote workers alike) that job demands had increased in the preceding four months, and 35 percent said workplace culture and collaboration had suffered in that period.
  • In late September, a survey by The Conference Board found only 28 percent of workers expected a full return to the workplace by the end of 2020; 38 percent expect to return in 2021 or beyond; 31 percent didn’t feel comfortable returning at all.

Sleasman at CBRE said he has seen no firm requirement by any industry other than medicine to bring people back on site. Those that are encouraging employees to come back are making accommodations to give them social distance, such as staggered or rotating shifts.

Other observations he has made in the past few months:

  • Leases are sometimes being extended for one year instead of the standard three to five.
  • More subleases are being signed; this benefits companies that don’t need some or all of their existing space and tenants that need a temporary solution.
  • Companies may be delaying but are not canceling plans to move to newer and/or better quarters.
  • National generalizations about office occupancy formed in big cities where people rely on mass transit and work in office towers with crowded elevators won’t be uniformly accurate because those COVID-unfriendly factors are uncommon in smaller markets such as the Capital Region.
  • Deals closed by CBRE-Albany in 2020 will be flat or slightly down from 2019 due to a dismal second quarter; things picked up in the third quarter and should be better still in 2021.

“There’s a lot of dynamics in play here,” Sleasman said.

CBRE-Albany’s report for the first-half of 2020 found that office vacancy rates were highest — 12.5 percent — in suburban areas of the Capital Region. (Two thirds of the total 30.5 million square feet of office space in the region is in the suburbs.)

Vacancy in urban areas ranged from 12.2 percent in Albany and 10.5 percent in Glens Falls to 4.9 percent in Saratoga Springs and 5.7 percent in Schenectady.

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