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While some businesses in the U.S. have decided to reduce their office footprint amid the shift to remote work, a growing number are rethinking those plans in order to reconfigure spaces to accommodate workers returning on at least a hybrid basis.
According to a CBRE survey of 185 U.S.-based companies released earlier this month, only 9 percent of large businesses expect their office footprint to get “significantly smaller” over the next three years. Earlier this year, a similar survey found that 39 percent of respondents expressed that view.
“Multiple factors support this sentiment, including the ongoing rebound of the U.S. economy and companies’ realization that they need to retain more office space than they previously thought,” said Julie Whelan, CBRE’s global head of occupier research, said in a press release. “Many companies now recasting the design and function of their offices will find that the square footage needed to accommodate team-centric work, free-address seating and meeting space often exceeds that previously dedicated to rows of individual offices and cubicles.”
CBRE, one of the country’s largest commercial real-estate-services firms, defines “significantly smaller” as a reduction of 30 percent or more. Meanwhile, the number of large companies who are considering moderately smaller office-space reductions of 10 to 30 percent almost doubled to 72 percent from 39 percent, the report found.
“Occupiers are rethinking their desire to offload as much space as maybe they thought before the pandemic,” Whelan said in an interview. “And now that they are making plans [to reopen their offices], they’re pulling space off the market to wait to see how they might use it.”
Sublease market declines
Some notable companies that have moved ahead in reducing their office footprint this year include Dropbox, which sold its San Francisco headquarters for $1.08 billion in March, as well as Salesforce and JPMorgan Chase.
Yet many of the companies taking back space that they had originally wanted to sublease are also in the technology and financial services sectors, such as Twitter and State Street Corp., according to Phil Mobley, Avison Young’s director of occupier research.
“In New York City, we have seen about 1 million square feet leave the sublease market this quarter,” Mobley said in an interview. “It’s about 10 percent or so of the space we were tracking as available as of the end of the first quarter.”
According to JLL, another commercial real-estate-services firm, many companies are having second thoughts about office givebacks out of concerns about the strains that remote working puts on corporate culture and productivity.
“This will help the market bring elevated sublease availability down to more manageable levels,” JLL said in a report. “Hybrid arrangements are still nascent and will undergo extensive trials before a broad consensus is reached in the coming years.”
Commercial real-estate brokers Cushman & Wakefield estimates that the total amount of office space available for subleasing has more than doubled since the start of the pandemic in March 2020 to 123 million square feet from 59 million square feet.
Since the market’s low in April 2020, the U.S. has added 1.9 million office-using jobs through March 2021. U.S. office employment will match its pre-pandemic peak within three years, with some resilient markets like Denver rebounding next year, Cushman & Wakefield says.
Office return: A short-lived trend?
“As occupiers leverage greater workforce agility, the quality of space will be more, not less important,” Cushman & Wakefield says. “Employees coming in two to four days a week will expect the office to provide the space, services and amenities not available when working from home.”
The CBRE poll found that once organizations deem it safe to bring back employees in some fashion, about 38 percent will spend three or more days per week in their office, 32 percent will spend equal amounts of time in their homes and office, 15 percent will work full time in the office and 7 percent will work remotely full time.
As offices reopen, many employees may flock to them early on, though the trend eventually will reverse itself, said CBRE’s Whelan.
“I don’t think that the trends that we have seen over the last six months of the year should necessarily be trends we base long-term forecasts on,” she said. “It’s going to take several months before we understand the true state of office occupancy.”
Office-market recovery predicted for mid-2022
CBRE Econometric Advisors, a division of CRBE, expects U.S. workers now will spend an average of 1.8 days a week working remotely compared with 0.8 days a week before the pandemic. As a result, they predict companies will use 9 percent less office space per worker.
“However, the impact on office demand will be largely offset in the coming years by increased hiring amid the economic recovery and evolving office floor plans that provide more room between workstations and ample space for group-centered work,” according to CBRE. Companies are telling CBRE, though, that they intend to use more flex-office space leased on a shorter-term basis than traditional office leases.
There’s also the issue of supply and demand.
Renters are showing a preference for newer properties. Office buildings delivered since 2010 have seen more than 198.3 million square feet of occupancy growth, while net absorption for buildings built before 2005 is negative, according to JLL.
JLL estimates that 63 percent of U.S. office buildings are at least 30 years old, much of which can no longer be repurposed to meet current safety standards, which will intensify the demand for new office space.
The U.S. office market will start to recover in mid-2022 and asking rents will return to pre-pandemic levels in early 2025, according to CBRE.
That is a shorter time frame than recoveries from previous economic shocks, including the 2001 dot-com bust and the global financial crisis of 2007 to 2008.
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