That’s right: 145 million.
Since April 2020, our lives have changed in myriad ways. We’ve become accustomed to our kids being home while “at school.” We’ve stopped eating out, going to the movies, and vacationing. And, many of us have turned our homes into our workspaces. When you combine this factor with the massive job losses resulting from the pandemic, physical office space requirements just won’t be what they were in the past.
A new study finds that the work-from-home increase resulting from the coronavirus pandemic could result in about 145 million fewer square feet of office space by the end of 2021. Global commercial real estate company Cushman & Wakefield have issued a report based on data covering widespread job loss during the pandemic combined with work-from-home mandates that demonstrate a significant decrease in the need for workplaces to provide office space. Their findings indicate a 50% baseline probability that space requirements in the US workforce will decrease by 145 million square feet during 2020 and 2021.
The study also found that the main driving force for this decrease in demand is job loss, and not the work-from-home trend – although both factor in. When compared with past recessions, these findings mean that this is the largest decrease in demand for office space ever. It outpaces the demand decrease from job loss in the Great Recession of 2008 by 30%.
Even when factors such as re-opening the workplace with six-foot distancing rules in place, the study finds that job losses and work-from-home will outstrip the need for physical square footage in the office. And, this trend was actually in place before the pandemic turned our lives upside down. Companies have been looking for ways to decrease spending, and, as a result, have been buying less office space for years.
The report’s 50% probability baseline for the 145 million square foot decrease is bookended as well with other potential scenarios. Depending on the pandemic’s impact on public health, and on the US government’s economic stimulus response (or lack thereof), those other potential scenarios could look better for commercial real estate – or, they could look a lot worse.
The study predicts a 10% possibility that job losses continue longer than anticipated, that Congress does not enact stimulus or economic relief legislation, and that the result is a loss of nearly 300 million square feet of office space – or, a 20% vacancy rate. That’s the worst-case scenario prediction. On the other hand, the scenario could work out with public health improving and job losses being staved off, and there could even be more governmental relief made available. If all goes in this optimistic direction, the study predicts a loss of a mere 69 million square feet of office space, and a vacancy rate that peaks at about 15%. The study gives this outcome a 10% probability rate as well.
If that’s the good news, then the only thing to be concluded from C&W’s findings is that commercial real estate is looking forward to massive decreases in the years, and maybe even generations, to come.
That’s right: 145 million.