Hybrid Work Strategies Will Reduce Office Space Demand by 9%

Companies are slowly but surely transitioning to some form of hybrid work. According to the 2022 Spring US Occupier Sentiment Survey from CBRE, 73% of companies plan to have some sort of hybrid workplace policy. For commercial real estate professionals, the inevitability of hybrid office usage evokes a single burning question: How will this impact office sector demand?

According to Stefan Weiss, senior economist at Econometric Advisors, who spoke last week in a CBRE-hosted webinar about US office occupier sentiment, the hybrid work environment will reduce office space demand by about 9%. There are a few contributing factors that play into that number. First, under the average hybrid work model, employees will spend about 24% less time in the office than they did before the pandemic, and employees will spend about 1.6 days, on average, working from home each week. However, says Weiss, “There won’t be a one-for-one reduction in space needs for employees because of what we call the efficiency factor. This is the ability of companies to convert less physical time in the office to less physical space. Because of the need to accommodate peak occupancy days, the efficiency factor is at about 55%, meaning that is you have equivalent of 100 less people in the office, you could only remove 55 desks.” In addition, there is a greater demand for collaborative spaces and amenity spaces, which is a net positive of about 5% for office space demand.

While overall, there is going to be a reduction in office demand, it won’t come all at once. “Not all of this will happen immediately. It takes time to plan and implement,” says Weiss. “As this new normal is being phased into the broader office market, we will see organic growth office set the short fall in demand as a result of corporate right sizing due to hybrid work, creating a significantly flatter transition than some people are predicting.”

This new normal will also mean the decoupling of jobs and office demand. In the days before the pandemic, net zero job growth meant net zero demand growth, says Weiss. That is a thing of the past. “As we are transitioning to this new normal, net zero job growth means net negative demand growth, so as the relationship between jobs and underlying fundamentals weakens, the value of each underlining job is much more important,” he said in the webinar.

In fact, the fastest growth job markets in the country are job markets with the greatest prevalence for virtual work, according to Weiss. Austin, Raleigh, Tampa and Nashville are all on that list. “This is counterintuitive, because we have spent a lot of time talking about virtual work as a headwind to office sector fundamentals, but we found that those markets that are best positioned for virtual work and by extension for the economy of the future, are set to outperform the broader US office market, not in spite of their propensity for virtual work, but really because of it,” says Weiss. “In these high growth markets, we expect organic job growth to offset the impact of corporate rightsizing by 2024.”