‘Treading Water’: Working from home hasn’t hurt Hawaii’s office rental market yet
Not so long ago Lea Hong thought she might need more office space. The Hawaiian director of the Trust for Public Land, Hong, planned to increase her staff and knew that her small downtown office suite at the Pauahi Tower in Bishop Square would not have enough room for everyone.
Fast forward to November and Hong assumes she’ll have plenty of room after all. Her team of six has been working from home since February, and the staff likes that – enough to say they want to work remotely for at least a few days, even if it’s safe to gather again.
“I asked every employee,” she says, “and only one person wants to come in every day.”
And this attitude seems to be common among US workers. Much has been written about the “new normal” workplace and the idea that the big COVID-19 experiment from home went better than expected. According to management consultancy McKinsey, As of April, an estimated 62% of employed US workers were working from home.
McKinsey found that 80% of respondents said they liked working from home; 41% said they were more productive than before and 28% said they were just as productive.
“Many employees who are freed from long commutes and travel have spent this time more productively, enjoy greater flexibility in balancing their private and professional life and have decided that they would rather work from home than from the office,” reports McKinsey.
Of course, there is a downside. Children, pets, and noisy neighbors can be distractions for teleworkers. A lack of personal contact with colleagues can hinder collaboration and communication. And the missing border between home and office can lead to longer working hours. Finally, there is the ever-present urge to get chores done.
“There’s always this pile of laundry that says, ‘Wash me. Wash me, “says Hong,” I have to resist the urge until after work. “
Hong does not plan to leave office entirely; you just don’t need more space. And it looks like the Trust for Public Land is not alone.
Mike Hamasu is studying commercial real estate trends as the director of advice and research at Collier’s International in Hawaii. According to Hamasu, the office market remains relatively stable.
Its most current quarterly analysis, for the third quarter of 2020, said the vast majority of Oahu’s approximately 14.1 million square feet of office space was full by the end of the quarter.
Occupancy fell 53,871 square feet in the third quarter, Hamasu said. This contributed to a year-to-date loss of 144,255 square feet, Hamasu reported. The office vacancy rate in Oahu rose to 11.6%, its highest level since late 2018.
“It is too early to throw in the towel on the office market,” Hamasu said. “It looks like the office market is treading on the spot.”
Real estate experts attribute this to several factors. For one, businesses that use offices, such as finance and professional services, are simply better economically than others that rent commercial space such as restaurants and retailers.
Kim Lord, Senior Managing Director of CBRE’s Hawaii Region, analyzes the Honolulu market.
She admitted that office tenants are usually tied to longer-term leases, which could make it difficult to hand over a room quickly. However, the trends CBRE sees are more a function of property costs versus operating costs, as well as the impact of COVID-19 on the bottom line of each individual industry.
For example, she said, if an office space is 10,000 square feet for a company with 50 to 75 employees, the average cost per square foot of $ 3 per month is relatively low compared to a company’s labor costs.
But, she said, retailers or restaurants are faced with a different equation. Such companies of the same size might only have 10 to 20 employees, with a cost per square foot closer to $ 4.75 per month, and typically have to cover utilities and other building operating costs. This means that a much larger proportion of the costs go into real estate.
In addition, some retailers had little or no income while staying at home orders were being made, while commercial firms using offices could still make money to cover expenses with employees working from home.
“Real estate costs are getting too high for retailers to justify or cover,” she said.
Fewer people, same room
Another factor driving demand for office space is the need for social distancing, which may mean less populated jobs in the long run.
With around 2,000 employees, the Bank of Hawaii is one of the largest employers in the state. Overall, about two-thirds of employees could work from home, and of that about 80% choose to do it, said Peter Ho, chairman, president and chief executive of the bank.
Still, the need for social distancing means that the demand for space will persist even if fewer people fill the space. And Ho doesn’t see social distancing anytime soon.
“These elements could network with each other,” he said.
The Bank of Hawaii isn’t the only large employer with large numbers of employees working from home. Hawaiian Telcom came up with the idea of allowing more employees to work from home ahead of COVID-19, said Kira Higa, the company’s human resources director.
“But COVID-19 just made us go a little faster,” she said.
The result was better than expected, she said. About 60% of the company’s 1,100 employees now work from home, she said.
This includes the company’s 100 call center employees. Initial concerns about background noise from calls turned out to be no problem, Higa said. But the company is constantly evaluating operations to see what is working well and what is not.
“I don’t think it’s a universal thing,” said Higa. “Everyone is different. Every department is different. And that is the challenge.”
There is one other major concern for Ho at the Bank of Hawaii. While employers and employees have proven remarkably able to adapt to living with COVID-19, the changes, he said, came from necessity during a crisis. At some point, he said, it will be time to take a step back and ask whether the changes that COVID-19 will bring are really the best for companies and employees.
“The Shazaam element in all of this is that we’ve proven that we can do it if we have to,” he said. “The question is: ‘To what extent do we want?'”