In my previous post I spoke about the shape of the recovery for the residential real estate market. Here is a quick summary – It never really slowed down and instead has only gathered steam thanks to macroeconomic factors of The Triangle, low housing inventory and low interest rates.
Other areas of real estate are headed for a slower rebound. For instance, office spaces. The work-from-home (WFH) model many companies have adopted has disrupted the office market. Companies that have leveraged this model have allowed leases to expire or put up their unused office space for sublease at rates not seen since the Great Recession. However, according to Gensler’s Work-From-Home Survey, only 12% of respondents want to make WFH permanent. Many employees, it seems, would prefer a blended model of work-from-home and work-in-office.
This preference of employees having access to an office out of their homes has not gone unnoticed by employers as well. According to Urban Land Institute’s 2021 Emerging Trends in Real Estate Report for the US and Canada, a full 51 percent of companies anticipate needing more office in the next 3 years, suggesting companies are already planning on bringing people back in and anticipate needing more space per employee to do so safely.
The real transition we will see is the purpose of the office space. Prior to employees working successfully from home, the office had to serve employees for all aspects of their work week – a social nexus and a place to hunker down and focus on the tasks at hand. Now that WFH has been widely adapted, employees appear to be more productive at home. Which leaves offices for the purpose of community and culture building; A place for employees to socialize with one another.
Prior to COVID, office design was trending toward an open format, and we heard a lot of complaining in the industry from employees who hated it. However, as the office environment evolves to serve a social function, this open format may remain the optimal design. Office space will still include private areas for phone calls, small group meetings and executive offices, but will probably include more informal gathering space and conference/breakout rooms. I would imagine that companies will also up their amenity game – out with the burnt coffee and in with the espresso drinks.
Which is exactly what many shared office/coworking spaces already offer. Small companies are not the only ones who can leverage the shared office/coworking model.
Many large companies had been leveraging shared space as a way to seed field offices in new areas. I believe the goal of these companies was always to grow out of the shared office into dedicated space. With access to built-in amenities and the flexibility to sign 1-3-year leases, an anomaly in the commercial real estate world, not to mention a broader community and social environment, large companies will benefit enormously from making shared offices a permanent real estate strategy.
The office sector will recover albeit a bit slower than residential real estate. Employees want to come back to the office and employers are preparing for the eventual return. However, the form and function will likely be permanently changed creating an opportunity to rethink the traditional office model.