Offices 'Holding the Door' While Companies Wait Outside

No one truly knows how remote or hybrid work will play out in the long run, so many employers are pausing major leasing decisions until they know more about their long-term plans about work culture.

As a result, new demand for office space continued to plateau in May, maintaining gains made in March, according to the VTS Office Demand Index (VODI). 

These data marked the eighth consecutive month where demand for office space remained between half and two-thirds of the pre-pandemic normal rate of demand, according to the Index.

The VODI tracks unique new tenant tour requirements, both in-person and virtual, of office properties in core US markets. 

“We expect that if and when they decide to look for more space, they’ll be walking, not running into the market, as they navigate what the office means to them,” Nick Romito, CEO of VTS, said in prepared remarks.

A Recession is Likely

Bill Saya, Partner at New York-based Berdon, tells GlobeSt.com that a looming recession is the latest reason many real estate investors are still relatively uncertain about the office segment within the US. 

According to Berdon’s 2022 East Coast Real Estate Market study, real estate executives and investors reported that they are unsure of their investment plans in the office segment, and only a small percentage indicated that they plan on building/developing new office space throughout the east coast. 

“To help employers entice employees back into the office, many owners/landlords have, and continue, to offer additional concessions and amenities, are converting existing office space to create more flexible environments for existing tenants and their staff, or are totally repurposing spaces for booming industries, such as technology, healthcare, and life sciences companies,” Saya said. 

Additionally, “office leases are a long-term commitment, and many companies are still trying to figure out their space needs going forward as well as their employees’ desire to return to the office,” Saya said.

Facing Downturn: This is ‘Part of the Process’

Petra Durnin, head of market analytics, Raise Commercial Real Estate, tells GlobeSt.com that a recession seems likely, “but it’s too soon to predict how drastic and how long it will last. Evaluating leasing strategies in the face of a possible downturn is a normal part of the process. That doesn’t mean people aren’t using office space. In reality, this environment is creating more office centricity, despite headlines, because many people crave in-person connection and mentorship.”

Durnin said to accommodate everyone, companies are becoming radically flexible and adopting a hybrid workplace model, incorporating multiple types of workstations for different kinds of work. Evaluating space and flex terms is very forward thinking.

“News of more companies adopting the hybrid workplace model seem to be increasing, but the commercial real estate sector was already moving toward hybrid work, albeit at a very slow pace,” Durnin said. “The pandemic compressed that timeline. The office space rightsizing in the last recession [in 2008], as companies evaluated space usage and how people work, was a precursor to the hybrid workplace model.

“The workplace is changing and employees are no longer in the office five days a week. Office demand is changing as well as companies seek radically different space to support hybrid workplace solutions. There is still demand for office space but the equation is shifting away from fixed square footage per employee.”

A New Frontier with No Guidebook

Howard Schmidt, vice president, tenant representation occupier solutions, Avison Young, tells GlobeSt.com that “the pandemic has brought all of us into a new frontier with no guidebook. However, one thing is clear—the majority of office employees are heavily influencing the hours, location and compensation of their jobs. 

“This translates into indecision for many employers with regards to how much space to take, how to use it, and how it will positively affect the return to the office for their employees.”

Gilles Raymond, the CEO/Founder of scheduler Letsmeet, tells GlobeSt.com that he believes the pressure regarding work-from-home is understated. 

“Companies are not comfortable talking about it, as they are facing significant push backs from the employees regarding the back to the office,” Raymond said. “As a consequence, most of the push backs are done under a kind of passive resistance with real rationales (there are many cases of COVID in the country), but also through weaker arguments (like, my manager is not coming in). 

“Companies that are offering fully remote positions, mention it in their advertisements to attract talent. Companies that are not offering it (like Google), list their offices from which you can work. It is clearly an important element for recruiting talent.”

Should I Stay or Should I Go

Aruna Ravichandran, SVP & CMO, Webex by Cisco, tells GlobeSt.com that her global survey of 1,500 people found that less than 9% of the global workforce expect to fully return to the office after offices reopen. And, 98% expect there will be at least one remote worker in every meeting going forward according to the same survey. 

“The hybrid workplace is here to stay,” Ravichandran said.

Contrarily, Sarah Davis, director of strategy at commercial design firm Pophouse, tells GlobeSt.com that while the outlook for the future of office is still being written, “what we do know is that the importance of the office and bringing people physically together will always be vital to organizations.”