What's the Future of Office Real Estate? Flexibility

The world of office real estate will be forever changed by the COVID-19 pandemic, but companies aren’t quite sure yet what the new picture looks like.

That’s one key takeaway from a new report on office space trends from CBRE, based on survey responses from 126 companies—half of which are on the Fortune 500—about their real estate plans. But a few things are clear early on in the pandemic, and one is that flexibility is a key component of office real estate strategies moving forward. Among the responding companies, for example, 63% said they will give employees more choice over where they work on a daily basis. Yet only a quarter said they plan to give employees the choice to work remotely on a full-time basis.

“So what that indicates to me is that companies are keeping the reins on what functions they are going to allow to be put into a full time remote bucket, because there is a certain amount of culture, there’s a certain amount of productivity, innovation and also individual employee performance that needs to go into that decision that employees alone can’t drive,” said Julie Whelan, who leads CBRE’s occupier research and who authored the study.

Costs are also starting to drive the long-term real estate decisions that companies are making, the survey found. Employee safety has been the primary driver of such decisions, but now companies are evaluating the cost of their physical office space alongside the technology cost of supporting a hybrid workforce where some employees are remote and others are working on site.

“I think that right now what I am hearing is that occupiers are starting to have a bit of a push and pull with costs of what their physical footprint is costing them and costs of what the technology to support this hybrid workforce is costing them,” Whelan said. “And so they are going to have to be even more prudent than ever before in terms of what they are outlaying.”

The COVID-19 pandemic has dealt a major blow to the market for co-working spaces, but Whelan said she predicts that co-working will emerge stronger than ever—in part because it will have already weathered the worst-case scenario. Companies will be more interested than ever in the flexibility that co-working spaces offer, noted Brandon Forde, who leads CBRE’s Occupier Accounts Group. He added that the rise of co-working spaces began during the 2008 recession.

Cities will also likely remain popular with employees, the survey found. Only 10% of respondents said they want to move away from urban cores, the report found.

“I think what we’ve got here may be a temporary or a short-term dislocation,” Forde said. “I think what I would argue for more than anything else is the urban environment and cities in general are where innovation takes place.”