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Post-Pandemic Flexible Work Arrangements and Its Impact on Purpose Built-Offices

March 24, 2024
MALAYSIA

The global workforce experienced a seismic shift in 2020 as businesses rapidly adapted to remote work models due to the COVID-19 pandemic. Three years after the first series of lockdowns, the world has begin to settle into the uncertainties of the post-pandemic era yet it is increasingly evident that the work-from-home trend is here to stay as opposed to a passing phase.

As organisations embrace the benefits of flexible work arrangements, the traditional concept of commercial real estate may require some re-evaluation. This paradigm shift born out of the necessity of a global work-from-home experiment continues to have significant implications especially for the commercial real estate sector, necessitating a thorough rethinking of its purpose and potential.

Preference for Flexible Work Arrangements

Once considered a perk offered only to a select few, work-from-home policies or hybrid working arrangements became a norm for millions of employees worldwide. Lockdowns and restrictions forced businesses to adapt and became a catalyst for remote work arrangements. Consequently, employees have become accustomed to working from the comfort of their own homes.

Preference for flexible work arrangements after the pandemic is an issue employers must contend with globally. A Gallup survey last year revealed that 90% of employees capable of remote work preferred some degree of flexibility for remote work in the future - 60% of these employees liked a hybrid work arrangement1 . The survey also found that 54% of employees working exclusively from home would consider seeking alternative employment opportunities if their employer discontinued remote work options while 38% of hybrid workers shared the same sentiment.

On a regional front, a Cisco study highlighted that hybrid work is now preferred by many employees across ASEAN markets:

These statistics highlight the importance of remote work flexibility in retaining top talent in the workforce. However, while employees may prefer hybrid work it does not necessarily mean employers have kept hybrid work policies in place. Trends show workers in Hong Kong, Singapore, Tokyo, and elsewhere in Asia have returned to the office at higher rates than their Western peers2.

To gain local insights into the workforce's perspective, HRD Corp conducted a comprehensive survey across all Malaysian states, encompassing diverse industries3.  The survey results corroborated the observations of chief human resource officers (CHROs) and HR leaders, affirming the significance of offering FWA options within organizations.

Out of the 1136 respondents, 59% strongly agreed and 26% agreed that having an FWA option was crucial. The primary reasons cited in support of FWA included managing personal health, reducing travel time, enhancing work productivity, and accommodating family and childcare responsibilities.

Updates in Local Employment Legislation

Malaysia took significant strides early this year in formally recognising Flexible Work Arrangements (FWA), further solidifying the idea that these work arrangements are part of the new normal as opposed to temporary fleeting phase during a global pandemic. Effective from 1st January 2023, the Employment Act 1955 (“EA 1955”) had incorporated the amendments introduced by the Employment (Amendment) Act 2022.

Section 60P and Section 60Q are the 2 new sections that provide for FWA in the latest EA 1955:

i) Section 60P of EA 1955

Subject to the terms in contract of service, Section 60P provides the option for employee to apply to employer for a flexible working arrangement to vary any of the 3 features in relation to the employment:-

  a. hours of work;
  b. days of work; or
  c. place of work.

ii) Section 60Q of EA 1955

Additionally, Section 60Q notes the application process of FWA as follows:

  a. The employee’s application for FWA must be in writing in the form and manner as may be determined by the Director General’
  b. The employer must approve or refuse the application within 60 days from the date the application is received.
  c. The employer must inform the employee in writing of the decision.
  d. If the event where an application is refused, the employer must state the ground of such refusal.

Impact on Office Spaces

On the commercial side of real estate, the shift towards FWA could hamper demand for traditional office spaces. As organisations realise in the post-pandemic era they can function effectively with a remote or a hybrid workforce, it inevitably leads to downsizing of physical office spaces or opting for co-working spaces entirely. With FWA arrangements, there significant cost savings on leasing or real estate purchases as well as other costs related to maintaining a full-time physical presence in the office such as utility bills.

As of Q1 2023, total space for purpose-built offices have been increasing however total space occupied have only showed signs stagnation or marginal growth. Chart sourced from NAPIC.

In 2022, the occupancy rates for purpose-built office and retail spaces declined despite the full resumption of economic activities. The vacancy rate for purpose-built offices saw a slight decrease from 78.9% in 2021 to 78.5% in 2022.

During the same period, the office market witnessed the completion of ten new buildings, adding a total office space of 420,000 square meters. This brought the overall office space availability to 24.30 million square meters with another 48 buildings, (equivalent to approximately 1.53 million square meters), in the incoming supply. In terms of planned development, NAPIC reported that there were 31 buildings planned for development, comprising approximately 0.99 million square meters of office space.

Chart shows decline of Purpose Built-Office Rental Index after the pandemic. Sourced from NAPIC.

Statistics are gloomier when looking at the Purpose Built-Office Rental Index among key areas after the pandemic. Despite the resumption of all economic activities and life having returned to normal, the rental index has shown only a marginal uptick since the pandemic and is a pale comparison to pre-pandemic figures.  

Ultimately, office spaces are likely to suffer long-term from the post-pandemic continuance of flexible work arrangements and the volatility of global market conditions. As fears of global recession remain around the corner amid the Russia-Ukrainian War and disruptions to the global supply chain, investors and companies would continue to take a cautious approach in establishing or increasing a physical office presence until market conditions become more optimistic.

References

  1. https://www.gallup.com/workplace/356063/gallup-q12-employee-engagement-survey.aspx
  2. https://fortune.com/2022/06/29/return-to-office-us-asia-hong-kong-singapore-tokyo-london-work-from-home-hybrid-remote/
  3. https://www.businesstoday.com.my/2022/11/22/flexibility-is-malaysias-new-workplace-currency/

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