null - Commercial Real Estate Office Properties | Avison Young
There’s a (work)place for us
August 13, 2021
The future of the corporate office is coming into focus
Of all the uncertainty wrought during COVID-19 pandemic, none has been greater than that surrounding the future of work—especially the knowledge work that has been performed in office buildings for most of the past century. Whether it should have been or not, the success of remote work was a revelation. Collectively, we learned that “going to work” does not have to mean commuting to an office building.
Yet it is still not quite true that homes make for great workplaces, nor is it the case that we always want them to. After more than a year of reflection, offices will be a meaningful contributor to knowledge work for at least another generation. But that does not mean they will stay the same. In fact, we expect the landscape of corporate workplaces to look and feel substantially different in several ways:
Hybrid work is here to stay. By the end of 2021, we expect more companies to formally embrace the hybrid workplace—if indeed they have not already done so. Flexibility about where to work, how often to come to the office, and how to work once there is emerging as a major factor in the ongoing battle for talent.
We already know that a majority of knowledge workers say they want to split time working between home (or another near-home remote option) and a corporate office. The early feedback from major occupiers suggested that 80 percent of them plan to enable this arrangement. Now, our research shows that a number of high-profile firms have publicly committed themselves to a hybrid model to one degree or another.
Cities will host fewer commuters during the week. It will take a while for people to return to office in critical mass, and the number is unlikely to reach pre-pandemic levels any time soon. By the end of 2021, we expect most companies to complete some form of a “return to office.” As this happens, remote work as a proportion of total working days will recede from mid-pandemic highs—but it will remain far above what it was in 2019. This will mean fewer people will commute into major city centers during the traditional work week.
Even with most COVID-related restrictions eased in the U.S., public transit ridership rates in places like New York City are far from full recovery. And data from Kastle Systems, a building access control systems provider, shows that the proportion of occupants who have returned to office buildings nationwide is still hovering around 30 percent.
Office occupancy will take a while to recover. Fewer commuters will mean a slower recovery for office occupancy in the next few years. Nationally, office leasing activity in the first half of 2021 was 17 percent below the same period in 2020, which was itself well below 2019. And net negative absorption has been more than 2 percent of inventory since the beginning of 2020, which means it will take time to come back even when demand recovers in force. Uncertainty over the long-term role of offices is clearly having an impact: Software provider VTS has noted that demand recovery has so far been generally slower in markets with the highest proportion of remote-friendly jobs.
Similarly, the long-term impact of remote work on the utilized density of office space (the number of square feet per person physically present at a given time) will take time to reach equilibrium. So far, about half of surveyed occupiers recently reported they are currently focused on a safe return to offices, rather than strategic decisions about workplace policies.
Investment in workers will increase. Companies will spend more than ever to enable their workforces, which means both transforming corporate workplaces and supporting remote work. In a post-pandemic world, employee wellbeing will be a major focus of this transformation. Practically every corporate real estate leader we surveyed told us it would be a strategic driver in their occupancy strategy going forward. In the time of the Great Resignation, companies that demonstrate a genuine concern for their employees’ wellbeing at the office will be at an advantage.
When it comes to remote work specifically, there is strong evidence that not all workers are equally able to be successful while working remotely. The reasons for this are many and complex. But, to the extent that employers can mitigate them with subsidies or stipends to employees for technology, ergonomic equipment, and flex work memberships, we expect many to do so. Already more than a quarter say they will—a number that should rise in a competitive labor market.
Workplace experience will reign. Employees will require workplaces that deliver an experiential X Factor, which includes ESG, wellness, and appealing design, along with a variety of workplace settings such as collaboration zones, focus-oriented areas, and hospitality spaces. This will result in relatively lower demand for “traditional” space, but increased demand for modern, agile, high-performance space.
It is both intuitive and empirically true that high-quality corporate workplaces attract people. As companies offer greater flexibility to work remotely in pursuit of talent, they will simultaneously be under even more pressure to make sure they provide competitive corporate workplaces. The time for transformation has come.
Coworking will come back strong. As companies reduce their long-term real estate commitments when leases come due, demand for flexible space will increase. We expect this to be particularly apparent in suburban centers. As a result, coworking will become an even more popular model than it was before the pandemic.
The past year has made the need for greater portfolio flexibility regularly apparent. Increasing use of flexible space is a long-term trend. But now, additional forces are coming to bear. As noted above, not everyone is able to work successfully while at home. But many of these people will still want to avoid an everyday commute. Strategically placed coworking sites near heavily residential areas can meet this demand.
While there is much we don’t yet know about the future of “office” work, there is also much that we do. Companies need workers, and those workers will demand flexibility. Corporate workplaces will still be necessary, but they must evolve. And more work will take place outside traditional offices than anyone would have imagined just a couple of years ago. How the future plays out will be a direct result of how companies respond to these forces.
Phil Mobley is our Director of U.S. Occupier Insight, based in our Boston office.