The COVID-19 pandemic sparked a reinvention of our ways of working, with more companies opening up to hybrid and remote working models. The big question companies now face is not whether they still need offices but rather how offices can best support the new ways of working, for example, as meeting places and culture carriers.
That’s according to Ronald Bäckrud (RB), Head of Region Stockholm at Vasakronan, Sweden’s largest commercial real estate company. He shares the landlord perspective on these changes with Nordea Thematics’ Viktor Sonebäck (VS) in the latest Nordea On Your Mind, “Office Space.”
VS: How have your office tenants been affected and behaved during the COVID-19 pandemic?
RB: The impact of the pandemic has varied hugely among different businesses. For some, 2020 became a very challenging journey, which required major restructuring to adjust the cost base. Those who succeeded built a foundation for a viable business. Other businesses have seen only a limited impact, or in some cases even a boost compared to where they were before the pandemic.
From a practical point of view, the introduction of official recommendations from authorities for people to work remotely required a fairly dramatic readjustment for many of our office tenants. Some chose to close their offices entirely, and others remained open. In my view, many have been very successful in adapting to the new ways of working, which the pandemic has forced upon us in various ways.
VS: Has there been a need for any temporary adjustments in rental levels, deferred payments or similar?
RB: On a general level, the pandemic has so far had a limited effect on Vasakronan’s rental revenue and earnings. For a time during 2020, the market was hesitant, which is what you would expect in the circumstances. However, rental volumes remained healthy in 2020, and we saw new rentals of SEK 535m, which I would describe as a fairly normal level.
At the same time, many of our customers within urban retail, restaurants and hospitality have just experienced 18 of their most difficult months ever. We have made a great effort to have a close dialogue with our most severely affected customers to determine how we could best support them in various ways. We have made commercial assessments on a case-by-case basis and, among other things, offered rental discounts under the framework of the central government rental support scheme, as well as deferrals of rent payments. However, there have also been positive signals. One of the strongest we have seen came from the fashion retailer UNIQLO, which bucked the trend and followed up its successful establishment in Stockholm a few years ago with a new store opening in our premises in Gothenburg in the spring of 2021.
VS: What impact have you seen on the Stockholm office real estate market during the pandemic? How is the market today, compared with before the pandemic in early 2020?
RB: Looking back, it is clear that Sweden’s biggest cities – Vasakronan’s markets – have seen the biggest short-term impact from the tight mobility restrictions which have been in force during the pandemic.
Now the optimism among many companies is apparent, and activity in the rental market has increased. This became even clearer after the announcement that the Swedish government is largely abandoning all restrictions from 29 September. Many companies are expanding, hiring and want their employees back in the office. We are seeing demand for efficient, well-conﬁgured offices in prime locations, ideally with flexibility in the rental contracts. And there is a willingness to pay for this.
VS: Do you expect work habits to change permanently, with more remote working after the pandemic?
RB: It remains to be seen which behavioural changes will be more lasting in nature, but it is obvious that remote working will continue to some degree. Employees want greater flexibility, and more and more of our customers are now asking themselves what mix of office presence and remote working they should expect.
This is leading to an increased need for the office as a meeting place. And we have seen a similar increase in interest in how to conﬁgure your office to allow new hybrid ways of working, employee wellbeing, co-operation and flexibility. These are fascinating issues and a development we have seen materialising for several years, which has now accelerated, and for which Vasakronan is well prepared. The high pace of technological development is also continuously creating new future opportunities.
VS: How would you describe the importance of location for office real estate? Do you think the importance will change?
RB: Location has always been important. With new ways of working, where we might spend perhaps three days in the office and work two days remotely per week, I would argue that it is becoming even more important. We want an easy journey to our workplace, using public transport or even a bicycle. When we are there, we want to feel a sense of belonging and context. We will also have even higher expectations for availability of food, shopping and services in the immediate area near the office, as well as the area feeling secure, also outside regular office hours.
VS: What sort of office premises will be needed after the pandemic? How will offices typically be used? Will there be a great need to reconﬁgure existing offices?
RB: We have considered and worked for many years with the issues that became immediately hyper-relevant for many companies during 2020. I want to be clear that the big question for our customers is not whether or not they need offices. They know that they need them, among other things as a meeting place and a culture carrier. The great challenge for every organisation is to ﬁnd the right way of working, and how to rig its offices to accommodate this. When should everyone show up in the office, when do we have physical meetings, and when are online meetings a better option? We know that physical meetings stimulate creativity and innovation. Most businesses want employees to meet and to have a desire to come into the office. Hence, we believe demand for really high-quality offices in prime locations with good communications will be even stronger.
For many, a future solution could be a mix of workplace resources. For example, you could have your own office to build community and culture, complemented by a part-time furnished office and some spaces in Arena, our coworking concept. This has been our thinking in deﬁning our offering, our own head office in the Sergelhusen office block in Central Stockholm, and several of our projects.
Nordea On Your Mind is the flagship publication of Nordea Investment Banking’s Thematics team, which produces research for large corporate and institutional clients. The research does not contain investment advice and typically covers topics of a strategic and long-term nature, which can affect corporate financial performance.
Top decision makers at Nordea’s large clients across the Nordic region receive Nordea On Your Mind around eight times per year. The publication’s themes vary widely, and many are selected from suggestions by clients. Examples of covered topics include artificial intelligence, wage inflation, M&A, e-commerce, income inequality, ESG, cybersecurity and corporate leverage.
Customers need offices, but they will need to be rigged for the future ways of working.