COVID-19 vaccinations are increasing in the United States, with the country now administering more than 2 million doses a day on average. This is leading to hope that the country can slowly start a return to normal this spring and summer. And part of that process? For many, it will mean a return to the office after more than a year of working from home.
But what will this return look like? And what will companies do to make sure that their employees feel safe? Midwest Real Estate News interviewed Dan Park, senior vice president and asset manager for Newport Beach, California-based KBS, to find out.
Here is what Park, responsible for carrying out investment goals in the Chicago, St. Louis, Kansas City and Midwest markets for KBS, had to say about the country’s eventual return to the office.
Will the Midwest still be an attractive market for office workers and companies, even after the pandemic?
Dan Park: Midwestern hospitality and quality of life, plus an affordable cost of living, make moving to the Midwest an attractive option for many people. For example, Downtown Minneapolis experienced considerable residential population growth during 2020. This market’s strong fundamentals are among the reasons KBS owns two properties in Minnesota:RBC Plaza at 60 South Sixth in downtown Minneapolis and Northland Center in Bloomington and why we continue to watch the region closely for investment opportunities.
We also see ongoing promise post-pandemic in the Chicago area, which offers a metropolitan lifestyle at a discount to the coastal markets. We own several premier office properties in the Chicago market, including Accenture Tower, 213 West Institute Place, 210 W. Chicago Ave. and Edens Corporate Center, and we believe strongly in this market’s resilience. As the vaccine continues to roll out and everyone becomes more comfortable with public transit, we anticipate that Chicago will likely be restored to its pre-pandemic office levels.
What have office owners been doing at their properties to safely bring tenants back to work, and what changes are here for the long term?
Park: We do our best to listen to our tenants and incorporate building policies and features that aid in the safe return for tenants and their employees. These include a multitude of elements that promote a healthy and safe environment now and well into the future.
Some of the immediate changes we made within all of our properties was quickly adding hand sanitizer stations and window and floor decals to promote social distancing. Additionally, we hired extra help to clean lobbies, common areas and high-contact areas, such as counters, doors handles, handrails and elevator buttons multiple times a day.
Beyond this, in a large portion of our buildings, we’ve upgraded our air filters to MERV-13, which blocks 98 percent of pollutants from the air and captures viruses, bacteria, pollen and fine dust.
Other steps KBS has taken at some of our properties include training janitorial staff on proper disinfecting practices and the use of approved cleaning agents that meet CDC and WHO requirements.
Ultimately, through these efforts, we can aid in limiting the spread of the virus and create environments where tenants and their employees feel safe. We are also constantly looking at ways to improve the tenant experience and what changes might make sense at each of our properties over the long-term.
What does the office leasing landscape look like at present in the Midwest?
Park: As 2021 progresses, we are feeling positive about the Midwest office leasing landscape. There are signs that activity has picked up over the last month in the region and across the country. There is a sense that confidence is building, and we should see the results of that sentiment toward the middle or later part of this year as the vaccine continues to become more readily available. In fact, the National Association of Real Estate Investment Trusts’ 2021 outlook anticipates an upswing in office valuations by the end of the year, which should correlate with increased leasing activity and occupancy.
From KBS’ perspective, we’ve seen some encouraging leasing activity in our own portfolio.Fredrikson & Byron, a leading Midwest law firm, recently signed a lease agreement for about 178,000 square feet of space at RBC Plaza at 60 South Sixth, a Class A, 40-story, 710,332 square-foot office tower and retail complex in downtown Minneapolis.
Our firm also signed more than 2 million square feet in accumulative lease transactions during the COVID-19 pandemic across our portfolio of office assets nationally. The transactions comprise a mix of new leases, renewals and expansions. This is an indication that companies are committed to having a physical office in both urban and suburban locations, and the Midwest is no exception.
After COVID-19 is behind us, will we see more companies going to a hybrid work model, where some people work at home on some days and in the main office when it makes sense?
Park: Although some companies will offer a hybrid model where employees will have the ability to work from home one or two days a week, we see this as temporary. Employers and employees are seeking collaborative environments that truly can only be found from working together in an office setting. I believe a company’s culture is difficult to achieve when everyone is working from home. Successful organizations all have a unique sense-of-place for their culture to thrive. Over the long-term, we believe that we will see a full transition back to the office as people become more comfortable going back to the office.
Additionally, there is no clear sign that the layout of office is changing significantly, an indication that employers and their employees will eventually return to an office environment very similar to what we previously considered normal. While some developers and tenants are configuring more private offices, changing their furniture layout, and creating more space between employees, we haven’t seen anyone completely alter their floorplans long term.
We are hearing from tenants that many of their workers have become weary of working from home and their appetite for traditional offices has grown. We expect this appetite to increase as firms recognize the connection between office space and productivity, employee morale and recruitment.
What will it take for employees to be comfortable returning to high-rise offices in dense, urban cores?
Park: We believe that as people see COVID cases decrease and a significant number of vaccinations are administered, their comfort level will rise, and they will begin to feel safe about returning to dense urban cores once more.
Widespread vaccination is important for people to feel comfortable and safe traveling in trains, which is especially relevant in a city like Chicago. Accenture Tower sits above the Ogilvie Transportation Center, one of two main train stations in Chicago’s west loop, which connects the suburbs with Downtown Chicago, so we are familiar with how important commuting by train is to our tenants in this market. We believe train and other forms of public transportation will return to pre-pandemic levels once the vaccine is widely available.
It is also important to ensure that tenants and their employees understand what owners and landlords have put in place to ensure their office space is safe and provides a healthy environment. This is why we work in partnership with tenants and remain flexible to ensure we are meeting their specific needs.
KBS recently rolled out a software program for tenants that helps companies to return to their offices safely and efficiently. This collaboration with Maptician, a cloud-based, workplace management platform has been a powerful tool for many of our tenants that allows them to basically overlay their floorplates with government mandates and analyze any of the social-distancing requirements to come up with a staffing plan. The software also assists with mapping out staggered work schedules as well as proximity contact tracing. We believe working in step with our tenants will help make them successful in getting everyone back into their workplaces.
Dan Park is a senior vice president and asset manager with KBS, one of the largest owners of commercial real estate in the nation.