Businesses that are adopting hybrid-work models, which allow employees to split their time between home and office, are increasingly turning to the suburbs to meet their needs for office space as they scale back their footprints in cities.
The so-called hub-and-spoke system — with a central headquarters (the hub) and local satellite offices (spokes) — offers a compromise for workers between the isolation of working at home and the anxiety caused by packed offices, as an article in MIT Sloan Management Review notes.
However, the approach is not without its complications.
“While office space is a physical representation of an organization’s people, culture and values, office space itself does not make a company,” the article said. “But the challenge of having multiple office spokes is ensuring that the employee experience — both in the office and culturally — feels cohesive. Companies must then deliberately define what cohesion means for them with consistent and clear interventions.”
A trend speeded by the pandemic
The shift of office tenants to the suburbs predates the pandemic but has increased since the health crisis began in March 2020.
The uncertainties about when workers will return to the office have been a boon to the owners of flex or co-working spaces in the suburbs, according to Phil Mobley, director of occupier research for Avison Young, a commercial real-estate-services firm.
Though many suburban flex and coworking spaces closed during the pandemic, Mobley said, those that remained open or have reopened “are quite busy right now in major markets. And that’s related to the delay of companies bringing everyone back into the office.”
According to commercial real-estate-services firm CBRE, the vacancy rates in downtown business districts rose between the first and second quarter of 2021 to 15.8 percent, 2.2 percentage points higher than their previous high in 2010. Suburban vacancy rates are around17 percent and remain below their all-time highs, CBRE said.
“In both submarkets, the rate of vacancy increases is slowing,” Julie Whelan, CBRE’s director of occupier research, said in a statement. “Nationally, suburban rents are expected to fall less severely than downtown rents.”
High-price office markets, such as San Francisco and Houston, were hit especially hard by the pandemic’s market disruption as companies unloaded office space they no longer needed on the sublease market.
“San Francisco, for example, has posted the largest jump in availability, soaring 840 basis points year over year in March to 18.4 percent, as more than 14 million square feet was vacated,” according to Marcus & Millichap, a provider of commercial real-estate services. “Houston maintains the highest available rate at 22.9 percent, up 240 basis points annually.”
A happy medium?
The hub-and-spoke system appeals both to employees who want shorter commutes and to cost-conscious businesses that would rather spend their money on cheaper suburban office space than pricey downtown locations.
The system could represent a compromise between the many workers who would prefer to continue to work remotely post-pandemic and their bosses, who are often eager for them to return to the office.
A World Economic Forum poll of 12,500 employed people in 29 countries found that almost one-third of respondents said they would quit if their boss forced them to return to the office. A July survey of U.S. workers by the Conference Board, a nonpartisan thinktank, found that 43 percent of respondents questioned the need to return to their workspace.
Young people are especially suspicious.
More than half (55 percent) of millennials and 45 percent of Generation X respondents questioned the need for their employers to reopen their offices, the Conference Board found.
“What’s striking is that the same workers who question returning to the workplace given high productivity while working remotely have also expressed greater concerns about mental health, stress and burnout [due to remote work],” Dr. Rebecca Ray, an executive vice president at the Conference Board, said in a statement. “This reinforces the need for companies to pay close attention to the well-being of their people in remote and hybrid work arrangements.”