Not another day at the office

Andy Warhol famously said that in the future everyone would have around fifteen minutes of fame. Well, Margaret Keenan has by now probably had her full quota, although she did have to wait almost 91 years to receive it, being the very first person to be inoculated against Covid-19under the UK’s recently launched vaccination programme. The grandmother promptly described it as “the best early birthday present”. Although the rollout of the vaccine has begun in Britain, it seems implausible that such vaccinations could be scaled up vastly in a short period of time. The vaccine itself needs to be kept at below -70⁰C, far below the temperatures typically used in modern-day logistics – and eventually around 6 bln doses will have to be produced and dispersed around the world. Despite the gargantuan challenges ahead, the entire world has let out a collective sigh of relief as salvation has appeared just around the corner. This feeling of relief was also palpable when talking with the owners and managers across the CEE region of what have become rather empty office buildings.

Going back to normal

When asked when he expected things to return to normal in the Czech Republic, Kevin Turpin, the regional director for research for the CEE region at Colliers International stated: “This is largely related to the vaccines and it’s very individual to every company. Once the virus appears to be under control and people are able to move more freely, then life will return to some level of normality. The vaccines are expected to become available in March or April for the majority of the public. Thus it’s difficult to say whether there will be any permanent effect on the markets.” The Czech Republic has no formal restrictions on office use and according to Kevin Turpin it’s very difficult to assess how many people are staying away from their offices. “People started to return to the office gradually in the summer up until October when the government imposed new restrictions on retail and other sectors in the wake of the second wave of the pandemic. After that, many people started to work more from home again, but office usage is mixed,” he says. When asked about the demand for new leases, Kevin Turpin responded that Colliers was about to release new research on this topic and that “one of the findings of our market research is that Covid-19 has led to lower office demand for the Q1–Q3 period of 2020, compared to the same period of the last year. There are a lower number of new leases and many companies are adopting a wait-and-see approach while vaccines are being prepared and until the overall situation becomes clearer.” In trying to assess the extent to which people are staying home in the Czech Republic, property owners CPI PG were more forthcoming. “The majority of our office clients have been operating in a home office mode, or at least to a certain extent. The large national and multinational companies are much stricter than the small and medium sized ones. They have 60 pct to 90 pct of their employees working from home most of the time,” wrote the company in a statement to Eurobuild magazine. In answer to the question, are employees returning to work, both Colliers and CPI PG say the answer is a qualified yes. According to CPI PG these are mostly workers who cannot perform their duties at home. “They are mostly rotating shifts in order to protect employees and the company from spreading the coronavirus infection,” claims CPI PG.

Not looking bright

Again in Hungary, according to Colliers International, it is the large multinational companies that are spearheading the drive to work from home. “The vast majority of international companies apply some form of remote work regulations these days and they plan to maintain them at least until mid to late 2022. The occupancy level of such companies is, on average, 10 pct of the total capacity they lease. These ratios for the public sector and for SMEs are significantly higher,” reveals Miklós Ecsődi, the director for occupier services at Colliers International in Hungary. As for people coming back to work, he seems far from optimistic: “It is clear that companies do not plan to return with 100 pct occupancy in the short term. The new norm is remote work and maintaining minimal physical connections between employees,” he explains. Despite the disruption, Miklós Ecsődi believes that what will have the largest long term effect on demand is how companies are now reassessing their own work. “Most of the occupiers who were able to postpone their decisions to lease office space over 2020 have done so. However, the restrictions are expected to only have a short term effect with limited direct impact on long term real estate decisions. The indirect effect, though, will be a lot more significant. Companies have realised that their processes are manageable with remote work as well and this is pushing them to revise their office concepts. These revisions are still ongoing and their effects are expected to have a significant impact on the demand for 2022/2023,” he predicts. Despite the challenges, office developer Futureal, however, is decidedly upbeat about the future demand: “We have experienced that there is still a lot of market demand for high quality office space with outstanding locations and services. As an example, with its unique digital, sustainability and health & safety features, the Budapest One office park is still attracting anchor tenants. Despite the challenges posed by the coronavirus, this summer we signed the two largest deals in the Hungarian office market this year. Therefore, the development for the second and third phase of the business park is progressing according to plan,” claims Janos J. Berki, the international office sales and asset management director at Futureal.

“In the main office buildings overseen by the property management team at Colliers Romania, about 25 pct of the tenants now have all their employees working from home; this percentage represents 76 pct of the total surface of office space. These are companies with 300–500 employees. The remaining 75 pct use office buildings for only 5–10 pct of their total workforce,” says Ștefania Baldovinescu, a senior partner and the head of real estate management services at Colliers International in Romania. She also points out that in June many companies started to return to their offices, “with some companies even having 60–70 pct of their entire staff in the office.” But the country was later hit by a second wave of the coronavirus and now occupancy levels have fallen back down to 5 pct in the office buildings managed by Colliers. She believes that the demand for office space has been dampened by decisions to lease new space being postponed, but also that when the situation improves demand could also remain subdued. “If companies can offer around 2–3 days of remote work per week – which is consistent with our surveys – we can expect new demand to be quite a lot lower than it was before the pandemic,” she says. Another interesting point that she makes is that Covid-19 is permanently changing the market: “There is a possibility that most of the measures taken over the last ten months will be retained into the future as well, even in the long term, including regular disinfections, which help people prevent seasonal flu, as well as limiting the number of people in elevators, the use of different corridors and turnstiles, and monitoring interactions with the help of different apps,” she says.

The situation in Slovakia doesn’t look much different. “To our knowledge,” says Michal Hoško, the director of occupier services at Colliers International in Slovakia, “almost every company on the market has introduced some form of remote working. We therefore estimate that companies in our country are currently using only up to 50 pct of their office space.” He claims that employers are fed up with people working from home, but with schools still closed the situation remains complicated. “Further difficulties arise with the need for young talent to have face-to-face interactions with their supervisors, and there are also corporate culture issues, where the team spirit is deteriorating, leading to higher employee turnover. So as a general trend the desire to come back to the office is growing; however, it’s hard to say exactly what the ‘new normal’ will be at this point in time,” he adds. Office activity in Bulgaria has also plummeted. “In some of the major office complexes in Sofia the workforce that actively uses office premises has fallen to 15–20 pct of the total number of employees,” reveals Adriana Toncheva, a senior consultant at Colliers International in Bulgaria. And when asked if tenants were coming back to work, she replied: “Tenants’ staff have been carrying on with their work, but remotely, so this is more a question of planning when they will return back to the office.”

Well, well, well

Obviously, office owners are doing all they can to bring tenants back to their buildings. Many developers are turning to technology to make their buildings safer. Futureal is taking this approach in Budapest. “As part of our Stay Safe initiative, the common areas in our latest development project, Corvin Innovation Campus on the Corvin Promenade, will become almost completely contactless, with automatic doors and light switches operated by card sensors. The elevators can be controlled with a mobile app and toilets will also be fitted with contactless hand washing and soap dispensers as well as hands-free flushing systems,” explains Janos J. Berki. The Stay Safe programme is based on Well health and standards, and this certification body has been extremely quick to draw up new guidelines for the pandemic. When asked to explain how Well could produce a health and safety certificate in just a few months, Ann Marie Aguilar, the senior vice-president for the EMEA at the International Well Building Institute, explained that “the twenty or so features that sit within the health and safety rating are part of the already well-developed Well version 2. We did not start from scratch. We basically looked at the most critical features for reopening buildings, and with the task force that we brought together in March we were able to come up with a really significant senior level interpretation of what we needed to do to the Well standard features to make them critical for the Well Health and Safety rating.” In her opinion, the rating is just the first step in obtaining a full Well building rating. “If you’re happy with your Well Health and Safety rating you can then be thinking longer term about getting that building Well certified and those features will be put towards your longer term certification,” she insists. Since June this year, around 7,600 projects have applied for the certificate worldwide. And it has proven popular across our region, with projects under certification in Poland, Slovakia, Hungary and Romania. Arcadis’ office in Prague was actually the first to be certified in continental Europe.

It’s clear that in most countries across the CEE region, the tentative return to work after the first lockdown was quickly reversed by the resurgence of Covid-19 in the autumn. Everyone is now waiting for vaccinations to restore some form of normality, but many companies might not be returning to the old way of doing business. “Overall, there’s no doubt that the pandemic has created the need to rethink the nature and the purpose of office space,” claims Michal Hoško of Colliers International Slovakia.