Real Estate Investor Magazine South Africa May/ June 2020 | Page 34

OFFICE
Workplaces of
the future
How businesses need to adapt in a
post COVID-19 world order
T
he past month will forever be documented in our
country’s history. Beyond Covid-19, we’ve seen
various other unprecedented local events taking
place such as the country’s lowest repo rate to date,
payment holidays by lenders, rental holidays by retailers
and entire industries working remotely. The shift in office
rental agreements, however, is due to last much longer
than the Lockdown.
“One particularly noticeable shift is that of office rental
agreements. Companies are now acclimatising to working
remotely and many are experiencing the benefits of improved
productivity and reduced overheads, first-hand,” says John
Jack, CEO of Galetti Corporate Real Estate.
Jack notes that this trend will make more room for current
trend-setters such as Regus and WeWork, which offer flexible
terms based around tenants’ requirements. “Pre-pandemic, we
saw millennials and more recently, Generation Z influencing
the notable shift from traditional 9 to 5 office set ups. Post
lockdown, we expect that this trend will accelerate rapidly
with increased connectivity, flexibility and scalability at the
forefront of every business.”
Tenants have the upper hand
On the whole, the last decade or more has been a ‘landlords’
market’ with relatively limited space available and a trend of
increasing rentals year on year. “Terms in lease agreements
were largely driven from the landlord’s side except in the
instance of very large multinational tenants”.
Over the past 12 months, we have seen that trend change
somewhat and now, more recently, swing heavily in the
favour of the tenant. “Landlords will need to get very creative
with lease structures creating significant flexibility therein,”
says Jack.
In this market, occupiers looking to sublet have become
the landlord’s greatest opposition. “Where a sublessor is
willing to take anything and still be better off than paying for
space they aren’t using, it’s typically very hard for any property
owner to match these terms”.
Jack cements this point saying that global retrenchments
have seen some companies give up 50% of their space due
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MAY/JUNE 2020 SA Real Estate Investor Magazine
to downsizing and optimisation of existing space, potentially
with some staff working on a flexible basis. According to JLL,
it’s estimated that 30% of South Africa’s corporate real estate
will be flexible by 2030.
“Cashflow shortages and the cost of relocating will be too
significant for many small to medium sized companies to take
on. Here, landlords will follow in the footsteps of co-working
spaces such as WeWork to fill their buildings and cover their
overheads”.
“The unprecedented repo rate cut to 4.25% per annum
could help to reignite the property sector in the long-run but
we don’t see it bringing any notable relief in the short-term.
That said, the spread between yield and interest rate currently
sits at an all-time high, last seen in the early 80s, which does
provide opportunities for investors coming into the market”
says Jack.
 Jack cautions the industry to brace itself for a period of
turbulence and change. “Any deal is better than no deal.
Restructure your agreements and look to form strong,
mutually beneficial partnerships with your tenants”.
Generation Z & the growing demand for flexible
workspaces
“In these tough economic conditions, this savvy generation
will need to be more self-sufficient and will undoubtedly
bring massive change to the workplace. Generation Z gives
rise to fresh energy in the workplace. According to Raconteur.
net they’re self-starting, self-aware and more realistic than
Millennials,” says Jack.
Jack says that it’s no coincidence that JLL’s predictions
around changes to corporate real estate collides with the rise
of Generation Z. “More than ever before, we expect to see a
huge demand for co-working amongst this generation as
they continue to influence the working world as we know it.
We will see a strong movement towards flexible spaces where
Generation Z’s needs are being catered for”.
Rethinking workspaces
David Seinker, founder and CEO of The Business Exchange,
believes there will be no returning to normal any time soon, if
ever. “The traditional office space as we once knew it, is now
dead.”
“There are a number of reasons why this is so,”  Seinker
explains. “Rather than a return to normal once this is over,
corporates are going to have to entirely overhaul their
thinking about offices to accommodate a number of factors.” 
1
The shrinking workforce 
Unfortunately, the human workforce is
going to be a big casualty of the Covid-19
lockdown. With so many businesses making
a lot less revenue than before, there have
already been large-scale retrenchments
across the board, and many companies will look to take up
less space at their respective head offices.
“Businesses will find themselves in a big office space with
an expensive lease, and not enough people to fill the desks,”
Seinker predicts. 
Large companies will now seek to diversify and reduce risk,
while also looking for smaller or serviced office spaces with
flexible leases as opposed to five- to 10-year agreements. They
will want spaces that offer other “nice-to-have” services such
as cleaning services, IT support and more, built into the lease
agreement. 
2
Higher health & safety expectations
“Going forward, employees will expect
cleaner offices and better measures to ensure
their safety. They will also be apprehensive
about touching surfaces that others have
touched before them,” says Seinker,  
Those who can afford it will look into automatic doors
and elevators that don’t require users to even press a button.
Those who can’t will need to provide hand sanitiser at all
public touch points as people’s concerns about possible
contamination will be with us for a very long time going
forward.  
3
Cost savings
“Businesses would have lost a lot of money
during the lockdown, and will have to
look at how to trim their budgets once
employees return to work,” cautions Seinker. 
Larger companies will try to better utilise their office space
by reducing the overall size of their workspaces, so reducing
rental costs, while others may adopt more of a hybrid model. 
Managing long-term risk will also become more
important, so corporate companies can be expected to seek
more flexibility in their lease terms. They may even look to
decentralise their head offices and possibly locate different
departments at different addresses.
4
No more open plan
The trend of the last few years for many
businesses has been to put their employees in
an open plan office space. While this may have
looked good and been a clever use of floor
space, it has meant that employees sit closer
together and so are more exposed to the spread of germs. 
“Before Covid-19 we already had a number of companies
enquire about private offices as opposed to open plan and
flexible space,” says Seinker. “Now, with Covid-19 and the
heightened awareness around how easily germs spread,
many companies are going to have to rethink their open plan
spaces and find ways to keep staff more separated from one
another in order to lower the risk of the spread of infection.”
Seinker concludes: “The traditional office space as we know
it today is no longer viable. Employees are going to be much
more demanding of their bosses in terms of taking care of
their health needs, while companies’ financial security is going
to require smarter thinking about how money is spent.”
SOURCES Galetti Corporate Real Estate &
The Business Exchange
SA Real Estate Investor Magazine MAY/JUNE 2020
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