Changing Demand for Office Space
After Y2K, companies discovered that many business processes within the corporate environment did not actually have to be connected to the headquarters or even supported in the same country, and this set in motion a tidal wave of outsourcing and offshoring of activities, as well as a new normal for how companies conduct business. A question on everyone’s mind is how COVID-19 in 2020 may, like Y2K, stimulate a new way of working. Might companies seek to decentralize business processes and employees in efforts to mitigate risk? Might the current events facilitate a much larger work from home workforce? What would be the impact on the size of the occupancy envelope required to host office employees, and what real estate costs might be incurred?
Preliminary discussions with companies suggest that a larger percentage of employees will be permanently supported in a work-from-home environment. While the extent to which each company will respond in their efforts to mitigate business risk and/or reduce cost is unknown, there are some clues as to what parts of the business are likely to be impacted more than others. Work that is more transactional in nature (rule-based, routine, technology-enabled, does not require a lot of in-person interaction) is likely to be reviewed closely. Other work in the organization that requires collaboration, judgement, and problem-solving but can be executed utilizing online collaboration tools is also likely to be impacted. Together, the impact on the demand for space could be significant and add to an already prevalent trend of companies requiring less office space to execute work.
Preliminary discussions with companies suggest that a larger percentage of employees will be permanently supported in a work-from-home environment.
Effects on Manufacturing
Will Covid-19 be the event that facilitates more rapid regionalization of supply chains? The vulnerability of the supply chain for many industries has been exposed as a result of the current crisis. Although companies operating under a build-to-forecast model have for many years been migrating to more regional models, China and other low-cost country platforms remain the work-shops of the world for many industries. The global response to COVID-19 has battered more global supply chains across industries as raw material supply and component manufacturing have been shut down. If we believe the COVID-19 event is not a one and done occurrence, the recent events are likely to stimulate companies to place additional focus on the vulnerabilities of a global supply chain model and will result in the transformation of the both the supply base and location of production facilities to ensure business continuity. In concept, this should result in an increase in North American manufacturing in both the U.S. and Mexico, and an acceleration of production technology that reduces labor content (robotics, AI, etc.) in efforts to reduce the structural cost penalty of manufacturing in the U.S.
The vulnerability of the supply chain for many industries has been exposed as a result of the current crisis.
Policy Change - Life Sciences Industry
The COVID-19 event exposed a critical shortage in the U.S. domestic inventory and production capacity of medical supplies and equipment. It also exposed the weakness of the supply chain for drug ingredients (for both critical and non-critical drugs) which are most commonly sourced from lower-cost production platforms such as India and China. It would not be surprising to see policy proposals that result in changes for how the U.S. supports surge capacity needs for equipment, supplies, and ingredients in the future. Such policy change could mean larger domestic inventory storage and/or more domestic production capacity for critical items.