The great office downsize is underway. 67% of corporate real estate (CRE) leaders planned to reduce their real estate footprints in the 18 months following January 2024. In the US, it is estimated that office vacancy rates will reach 24% by 2026, according to ‘What Will Be The Impact On Office Demand from WFH?’, a 2024 analysis by Moody’s; up from the reported vacancy rate of 19.8% in Q1 2024.
The level of demand for office space has fallen steadily post-pandemic as acceptance of, and demand for, hybrid working grows; 87% of respondents to the Leesman, powered by HqO regular workplace surveys, now work in a hybrid way. In The Hybrid Future (THF), meanwhile, Leesman’s ground-breaking study, 91% of respondents said they liked hybrid working, with 62% saying it had a positive impact on their organization’s culture.
It means people are simply not in the office as much as they once were: 63% of employees spend between just one and three days there per week.
For operators, it represents one of the biggest challenges – and arguably one of the biggest opportunities – ever seen by the CRE market.
So, why does the office still matter? For all its popularity though, remote working is not for everyone. Leesman research shows that while more senior workers, and especially women, prefer the autonomy, flexibility and indeed peace of home working, younger people tend to prefer sociable offices where they can learn from, and work with, colleagues.
The office remains an important hub for connecting. The most common reason for coming into the office, cited by 59% of respondents, was ‘meetings and collaboration’, closing followed by ‘socializing with others’ and ‘building professional relationships’.
The good news for operators then is that the office remains an important part of most hybrid strategies. But the market has shifted, and occupiers are demanding more from their landlords to support this new way of working.
The most dynamic employers want to support all their employees by providing a mixed workplace strategy, where remote working opportunities sit alongside a vibrant and cohesive office experience. What that looks like varies from company to company but will inevitably include opportunities for formal and informal interactions, collaboration and quiet, focused work.
CRE leaders are also grappling with the financial implications of maintaining under utilized desks while ensuring hybrid workers still want to come into a dynamic office environment. Many are therefore revisiting long-held workplace strategies and adopting new approaches, such as unassigned seating.
But for these new approaches to work, options need to offer more than just desks, chairs and the odd meeting room. They need to provide a variety of flexible spaces that can accommodate and support all employees, regardless of the task at hand or how often they are there.
Faced with a reduction in office attendance, occupiers are not just reducing their real estate footprint – they are demanding more from the workspaces they retain.
The operators who understand this and are able to provide workspaces and services tailored to the specific requirements of hybrid working will have the advantage in an increasingly competitive market.
In their 1999 book The Experience Economy, authors James Gilmore and Joseph Pine invited readers to think about different ways of connecting with customers. In particular, they argued that businesses need to progress up the value chain, moving from basic commodities to value-driven experiences.
Real estate is arguably going through such a transition. Already, traditional leasing is no longer just one building offering standard office space: it is one building providing outdoor events, restaurants, shared food, conference and fitness facilities, traditional workplaces with long leases but also flexible spaces and suites, retail and services.
The office was once something essential to getting work done. But it is no longer mission-critical, especially in the knowledge industries. Landlords need to move away from providing a generic space for work, with little input from occupiers about what that looks like, to creating more personalized, high-level experiences that drive high-value work. In progressing through this value chain, operators can provide a differentiated offering, complete with premium pricing – essential in a competitive, shifting market. They can also attract and retain the most dynamic clients who are not only demanding more than ever before from their real estate but have a growing number of options and locations to choose from.
As occupiers are beginning to understand and accommodate the changing needs of their newly hybrid workers, it’s now more important than ever for operators to understand the unique needs and preferences of tenants.
After all, as Moody’s states, for better or worse, productivity does not appear to have been affected by WFH, leaving businesses “without a strong incentive to revert to traditional office settings, especially considering the potential cost savings from reducing physical office space”.
The past five years have been transformative for the real estate market. While the challenges have been significant, the post-pandemic era has unlocked new trends and clear opportunities for landlords to innovate, adapt, and secure the tenants of tomorrow.
In other words, the way people work has already changed – it’s now up to operators and the wider office market to catch up.
