Offices Adapt as Hybrid Work Becomes Normalized

Before the Pmicron wave earlier this year, office leasing activity had reached its highest levels since the onset of the pandemic. The space available for sublease also declined, most importantly in central business districts, according to Marcus & Millichap.

Omicron interrupted this positive trend, raising vacancy in CBDs by an estimated 30 basis points in the first quarter of 2022, while suburban rates remained stable. 

The subsequent slowdown in cases was welcomed news for office owners. Sadly, it appears that cases are rising again, although it remains unclear whether another wave is forming. In the meantime, though, companies are moving forward to bring workers back to the office.  

This is being captured in numerous data points, such as Kastle’s office barometer and a Pew Research Center report that found the number of workers who report a willingness to return is increasing, up to 49 percent in 2022, compared to the 36 percent registered in 2020. 

Perhaps the best indicator is that office leasing is rising in some cities, such as New York.  Danny Mangru, NYC regional manager of insights & innovation at Avison Young, tells GlobeSt.com that many more large-scale deals have been signed in recent quarters, signifying a rising demand by market-moving tenants.

“We are not only seeing an increase in leasing activity, but also in return to office efforts via foot traffic,” Mangru said. 

The Rise of Hybrid Work 

Of course there is no sugar coating it for office landlords: much of this return is being done through hybrid work schedules. And that has multiple ramifications for the asset class. In short, the buildings must be perceived to be safe and preferably new and the space reconfigured for this new style of work. 

“For those choosing the hybrid work models, employers will gravitate toward newer buildings with better ventilation systems, AV systems, flexible floorplans, and modern amenities like touchless systems,” Ali Furman, Managing Partner, PwC US Transformation Consulting Business, tells GlobeSt.com.  

It is a flight to quality, a long-standing trend for offices but this time emphasizing health and safety. 

“Class A/Trophy assets along with those assets that have been materially amenitized and upgraded will outperform other asset classes for the foreseeable future,” Rob Naso, managing partner & head of asset management, BentallGreenOak, tells GlobeSt.com.

“There is increased demand for unique, high-quality space that caters to creative and collaborative knowledge workers. Firms will want to have a landing pad for these teams while understanding flexibility will be an integral part of workplace strategy.”

Space that encourages collaboration, too, is key. “Many companies are redesigning spaces for hybrid working,” Petra Durnin, Head of Market Analytics for Raise Commercial Real Estate, tells GlobeSt.com. “Hybrid is here to stay; even companies that identify as remote are actually hybrid.”

“There is a consistently higher utilization Tuesdays through Thursdays, which is going to impact how companies manage capacity and collaborative teams,” Durnin said.

And it may be that the further away we move from the pandemic, the more inclined workers will be to spend more time in the office. “There is a reason why humans congregate and it isn’t just because their bosses tell them to,” Marcus Moufarrige, Founder and CEO of Ility, tells GlobeSt.com.  

“Humans take inspiration from one another. The friction from close interactions causes innovation. We can live without it for a while but my view is that humans will want to congregate again.”

Office Must Be ‘Enjoyable Place’

However these trends shake out, it has become clear that the office experience for workers has changed, perhaps permanently. Sarah Davis, director of strategy at Pophouse, a Detroit-based commercial design firm, tells GlobeSt.com that companies need to demonstrate that the onsite experience can provide value and function for all individuals.

“The office should be thought of as a destination that draws employees in and enhances their engagement, productivity, and innovation,” Davis said.

Qualtrics recently released its 2022 Employee Experience Trends, which indicated that while people still want an office, currently 37% do not agree that it is an enjoyable place to be.

“Hybrid is a tricky mode of work to successfully determine, and many companies are grappling with what the best approach will be,” Davis said. “Employees might question the need to come into the office, especially if it is not set up to support the ways they need to work.”