In these unprecedented times, many have asked what the coronavirus impact on businesses will be; and it is still unclear how coronavirus is affecting commercial real estate markets across the country. For Atlanta, we wanted to shift the discussion to the local level and focus on the following five instances where the metro area’s office market could both benefit and be adversely affected by the pandemic.
- Relocations of businesses escaping densely populated areas could benefit the Atlanta metro area.
- Re-densification of offices could mean more cluster offices for a company rather than bigger offices. Companies could seek to spread their offices out geographically rather than densifying into one building, making Atlanta's sprawling metro an attractive location.
- Coworking's pre-pandemic struggles are expected to be intensified as companies respond with a guarded willingness to place their employees into highly-densified spaces.
- Sublease spaces are expected to increase as companies look to become more cost-conscious and responding to an increase in work-from-home operations.
- The validation, and success, of telecommuting during the pandemic suggests a permanent change to the work environment in Atlanta.
1. Coronavirus relocations out of densely populated cities benefit Atlanta
Atlanta has been one of the top five MSAs for the most net migration in the last five years according to the 2018 American Community Survey. Prior to the coronavirus pandemic, the metro area saw significant relocations from highly urbanized locations in the Northeast and West Coast with companies citing lower taxes, higher quality of life and a well-educated labor force as reasons for these moves. The coronavirus crisis is anticipated to further broaden the reasons for escaping densely populated areas a smore people and companies question where they choose to live and conduct business in the post-pandemic era. For Atlanta, this reasoning stands to benefit the metro. The MSA is already known for its sprawled out nature and is the location of many affluent suburban nodes. The metro Atlanta Chamber of Commerce recently noted relocation projects from outside markets continue to come through their door. It would be of no surprise if this trend intensifies in the coming year and beyond.
2. Social distancing in office space and density shiftsIn the time of social distancing, the open office trend faces a complete 180-degree reversal; moving from design layouts promoting high-density collaboration, to office environments incorporating separation and privacy. The cubicle could be making a comeback. What this means for office buildings is build-outs will begin to integrate higher employee per square foot amounts. One would then think larger leases are on the horizon; however, given the other impacts expected as a result of COVID-19, including increased teleworking and less dependency of in-person meetings, this will not be the case. For metro Atlanta, the re-densification of offices could mean more cluster offices for a company rather than bigger offices. Companies could seek to spread their offices out geographically rather than densifying into one building, in one submarket. Atlanta’s nature as being a sprawled out metro makes it the perfect candidate for this type of scattering.
3. Coronavirus effect on coworkingFor a business model which requires shared space, and packing in as many members as possible, coworking companies face unprecedented challenges as a result of the coronavirus pandemic. The industry was already struggling ahead of COVID-19, observed through the multiple commentaries regarding WeWork’s woes late last year, and also by our Q1 Top Office Markets Report which mentions leasing demand from coworking and flexible workspace firms all by drying up over the past few quarters. For Atlanta, there has been talk of WeWork pulling out as an anchor tenant of The Interlock in West Midtown, a move that would relinquish 118,000 square feet back to the developer. With the pandemic ongoing, the business sector faces long-lasting, and possibly devasting results going forward. There will be a guarded willingness of companies to place their employees into highly-densified spaces (as mentioned previously). Additionally, landlords will be less than enthusiastic to expose a significant portion of their buildings to these operators given their own trials of anticipated vacancies.
4. Sublease space increases because of coronavirusAnother aspect of the Atlanta office market impacted by the coronavirus pandemic is an influx of sublease space availabilities. Some companies are looking to become more cost-conscious while others find themselves in a position of not needing so much space now that their employees can effectively work from home. These companies are looking to get out of existing leases and subleasing is an effective option. Already in the months of March, April and May, we have seen 634,000 square feet of subleases added to the Atlanta office market. This represents a 20% jump in availability of this space since the beginning of the year. Our analysis shows Buckhead added the largest amount of sublease space over the three months, while Midtown saw the largest increase in availabilities. None of Atlanta’s major office submarkets were impervious to this occurrence. All witnessed sublease space increase by a minimum of 80,000 square feet.
5. Telecommuting post-COVID becomes the normAll over the world, the coronavirus affect on office workers has forced them to work from outside of their normal office locations. Metro Atlanta’s office buildings have been emptied during the past few months. As the companies typically occupying these spaces have instituted coronavirus work from home policies, some for the first time, many have found productivity amongst their employees has not suffered. Though telecommuting had been on an upward trend even before the coronavirus, the pandemic has thrust the work arrangement mainstream. A recent global survey conducted by our Colliers International Occupier Services Group noted four out of five employees would like to work remotely one day or more once the crisis has passed. Locally, the Atlanta Regional Commission conducted a regional commuter survey last year documenting commuting trends in the metro area. The survey, carried out prior to the current pandemic, found 40% of commuters teleworked which represented and 80% increase since 2007. In addition, the survey noted 50% of the commuters worked for a company with a formal telework program already in place. So, this survey alone tells us many of Atlanta’s companies were well-prepared to move work from outside the workplace even before COVID-19. The validation, and success, of telecommuting during the pandemic suggests a permanent change to the work environment here.
- The Metro Atlanta Chamber of Commerce recently said the coronavirus pandemic had put many plans from outside companies on hold; however, noted their pipeline was where it was last year and expansions into the metro continue to remain elevated.
- One of the most significant spaces yet to be shown in the subleases data, but likely to be the largest space added as a result of the pandemic, is Macy’s recently completed lease at Hines’ new T3 West Midtown property. This will result in an additional 107,712 square feet of sublet space to the Midtown submarket.
- A lot of discussion has centered around the future of companies shifting to a work-at-home strategy. It should be noted the efficiency of employees working from home may be attributed to an energy behind adapting to the unprecedented nature of working over the past few months. Time will tell.