Worcester Telegram & Gazette – June 2020COVID-19 has proven the greater Worcester business community can effectively work remotely – away from traditional office settings. Away from the Mercantile Center. Away from Main Street. Away from the Business Improvement District.
This revelation presents concern for those whose careers are based on buying, selling, leasing and filling said office space. While some brokers noted that a trend in companies downsizing their physical footprint predated the pandemic, the fear is that given COVID-19-imposed health restrictions, these types of moves will become more and more common.
“New activity has slumped off quite a bit in the market,” said Jim Umphrey, president of Worcester-based Kelleher & Sadowsky. Even though the industry was deemed a necessary one and allowed to continue operating throughout Gov. Charlie Baker’s shelter-in-place regulations, “it’s been more challenging to rent space” since the onset of the coronavirus.
The practice of showing available space, said the 35-year veteran of the local market, has been, “until recently, frowned upon.”
Among real estate developers, the consensus is that certain types of commercial spaces will rebound more quickly than others. Looking to build on the momentum of previous years and a local reliance on e-commerce, Umphrey said industrial, high-bay warehouse space is poised to be the most resilient commodity, followed by the investment segment of the industry – a part-retail, part-commercial building – trailed by office space.
Umphrey predicts further corporate downsizing, already murmured about across the industry and something he called “common,” is one way in which local vacancies could increase.
Anecdotally, said Umphrey, a Kelleher & Sadowsky client currently renting 7,500 square feet has chosen to extend their lease but simultaneously consolidate into 6,000 square feet. This move was planned eight to 10 months ago, said Umphrey, but the implications of COVID-19 will produce more and more such renegotiation.
Yet, there’s a simple factor he hopes may stem the tide of physical space downsizing: fear of a second wave of COVID-19 outbreaks.
“One thing is obvious,” said Chip Norton, owner of Franklin Realty Advisors and developer of the Mercantile Center, “folks are coming back slowly and cautiously, far more gradual than I expected.”
Whether an office is laid out with multiple cubicles or relies on shared space among multiple employees, “people may say ‘I’m not comfortable, I want my own space,’ ” necessitating a large overall footprint, said Umphrey.
However, some businesses may opt to divide their workforce into shifts, requiring only a fraction of their employees to be present in the office on certain days, therefore maintaining their current size.
“Hoteling,” wherein different employees use the same office space at separate times, was increasing in popularity for more than half a decade, but now is a thing of the past, Norton said.
“That concept will disappear pretty quickly,” he said. “Common sense would tell you that wouldn’t work going forward,” given concerns over the spread of COVID-19.
Norton added that larger tenants in his holdings are predicting returns to the office in “late summer or early fall,” with only a handful of people at a time.
“Long-term, most companies never had to force the issue (of working remotely), and unfortunately over a 69-day period they had no option but to do so,” said Norton, who has been operating in the Worcester commercial real estate market since the late 1970s. “Most are surprised how efficiently they were able to do so” and are considering the benefits that could come with a smaller physical footprint.
For Umphrey, “the jury is still out” on remote work. He posited: “Do people enjoy working remotely more than they enjoy having social interaction or being part of a company and a team?” That, he said, will play a part in how quickly companies return to full occupancy.
Long-term leases may help keep businesses in their current spaces.
“Short term, if you have a four- or five-year lease there’s not much you’ll be able to do unless you renegotiate,” with your landlord said Norton. “But, if you’re a tenant that has a lease rolling in the next couple years, you’ll be reevaluating … (and) I would suspect many companies will look to downsize as their leases roll.”
A saving grace for Worcester’s market, said Craig Blais, president and CEO of the Worcester Business Development Corp., is the recent uptick in adapting Class B office space to housing units. Projects to renovate “vanilla old space” into much-needed housing, at locations such as 332 Main St. and the Commerce Building at 340 Main St., “have not slowed up.”
When the pandemic slows down, said Blais, “those spaces will be very hard to fill, and the creativity of converting them into housing will help (the city of Worcester) come out of this well.”