Office Space Demand Expected to Drop 10-15% as More People Work From Home

A new report suggests the office real estate sector, especially in gateway cities like New York, San Francisco and Washington, DC, will feel the pain for years from the pandemic-led work from home trend.

“The notion that a well-located office building full of highly paid workers in or near a dense, expensive city is the best way to operate a successful firm has been challenged by the acceptance of remote work,” said the report by Green Street Advisors, a real estate research company. ”Coupled with an increase in individuals who no longer regularly go into the office, many more may consider moving further away from coastal city centers.”

Overall, the need for office space will decline by 10-15% because so many people are working from home, and the trend could become a permanent employment benefit after the pandemic has passed, wrote Danny Ismail, lead office analyst of Green Street.

The reason that working from home may become permanent is because it’s been widely successful. Remote employees or just as productive—sometimes more so—and they like not commuting and having scheduling flexibility, the report said. In the future, some employees will still go to the office every day, but others may not go daily.

Ismail wrote that he did not expect a fully work-from-home world. Companies’ success depends too much on factors like organizational culture, corporate communication and employee retention, he explained.

The expected 10-15% reduction in office demand may be offset by another trend, however. In the past decade, companies squeezed more employees into the same office space. The need for social distancing could undo this densification trend, the report said.

“A shift toward de-densification could prove a boon to office demand and potentially offset the impact” of working from home, wrote Ismail. “Investors should remain open-minded about a de-densification trend as this reversal could have material positives for the office sector.”

The report also noted that Green Street expects for the need for office space to shift geographically away from gateway markets, which are large international cities that serve as entry points into the country. Smaller cities are not so economically sensitive and offer a lower cost of living and better fiscal health, said the report.

For example, the top five cities that will be “winners” as the work from home rate accelerates are: Raleigh, North Carolina; Denver, Colorado; Charlotte, North Carolina; Austin, Texas; and Phoenix, Arizona.

In contrast, the five cities that may benefit the least from the trend are: San Jose, California; New York City; Washington, D.C.; Boston, Massachusetts; and Houston, Texas.

“Employers and employees see more of their income lost due to taxes in gateway markets compared to Sun Belt markets, which has partially driven the recent large net migration towards the Southeastern United States,” wrote Ismail. “Less expensive locales with nice weather will attract talent from high cost and high tax markets.”