Strategies Enabling Commercial Real Estate Professionals to Navigate the Changing Landscape of Office Space Demand
The evolution of remote work has been a rollercoaster. As COVID-19 peaked, 69% of the US workforce struggled to figure out how to work from home. Though most felt the whiplash of returning to the office in a matter of months, it’s clear the ride is not over.
The majority of employees say they enjoy the enhanced work-life balance and flexibility remote and hybrid work offers, and employers say they benefit from massive cost savings in reduced overhead and office space. Because of these trends, an Upwork study predicts that 22% of US workers will be fully remote in 2025. Furthermore, AT&T expects the hybrid work model permitting employees to work from home part of the time will climb from 42% in 2021 to 81% in 2024.
The shift towards digital work and virtual communication technology smoothed transitions toward remote work for many sectors. However, one industry had an especially rough ride. As commercial real estate agents, we have learned to pivot quickly. Today, we are adapting to the changing landscape with innovative strategies that completely re-envision tomorrow’s office spaces.
Changing demand for office space as a result of remote work The rise in remote work has led to several notable changes in the demand for commercial real estate. First and foremost, we see decreased demand for traditional office space as companies adopt remote or hybrid work models.
Property Shark reports that the top 40 US cities developed over 115 million square feet of office space in 2019, a 52% increase from 2018’s development figures. These figures, as we now know, came during the US economy’s zenith. Only months later, we were thrown headfirst into the impending worldwide lockdown and pandemic.
Currently, much of that shiny, new office space sits vacant. At the beginning of 2023, office vacancy rates in New York City reached a record high of 16.1%, while nationally, they remained at 16.4%. San Francisco, known for its large tech industry, had a vacancy rate of 41.6%. Unfortunately, these numbers don’t paint the entire picture, as a significant portion of office space that is reported as leased actually sits empty. This means that as leases run out, the numbers will grow substantially worse.
Certain industries have been more affected by the trend toward remote work. Technology and IT companies, for example, have embraced remote work more readily due to the nature of their work. Professional services and knowledge-based industries have also led the way in increased remote work adoption.
On the other hand, industries requiring a physical presence, such as manufacturing or healthcare, tend to have a limited impact on office space demand.
Successful strategies in commercial real estate involve flexible and co-working spaces As commercial real estate professionals, we are turning the tide by repurposing a new kind of office space to meet remote and hybrid workplace requirements for flexibility and collaboration.
We design these workplaces of the future by collaborating with companies to tailor commercial real estate to their specific needs. Overwhelmingly, these companies tell us that the shift toward remote and hybrid work necessitates co-working spaces.
In a nutshell, co-working spaces are offices where workers from various companies share space. The flexible arrangement allows companies to enjoy financial savings and enhanced networking.
In a co-working space, shared facilities like desks, conference rooms, utilities, kitchen areas, and high-speed internet are a given. However, other perks like gyms, free snacks, comfortable lounges, exercise sessions, and social events make these workplaces feel lightyears beyond the tired pre-pandemic offices fitted out with cubicles and fluorescent lighting. Though the amenities of co-working spaces differ, the goal is to create stress-free places where employees feel at home.
The new flexible workspaces prioritize innovation, enhanced in-person experiences, and employee well-being. Instead of cubicles, we fit these modern offices with areas designed to facilitate collaboration and culture building — think innovation labs and whiteboard rooms.
As we cater to the needs of companies driven by remote work, flexibility in office space offerings is more crucial than ever before. Flexibility allows businesses to adapt to changing requirements, scale their space up or down as needed, and provide employees with options for where and how they work. Co-working spaces and hybrid office solutions provide the agility and versatility that align with the evolving demands of the modern workforce.
Commercial real estate trends toward shorter-term lease agreements We are not only seeing the need for flexibility as we shift our perspective on physical office space, but also flexibility driven by shorter-term lease agreements. Today, we can make real estate far more appealing by enabling companies to maintain flexibility in their space requirements.
In the world of commercial real estate, short-term leases are around three years or less, while long-term leases can be 10 years or more. Shorter-term leases give tenants the flexibility to scale up or down as their businesses change, meaning startups can expand their space easily if they grow, and they don’t have to worry about being caught in a 10-year agreement if their business fails.
There is no doubt that the global pandemic dramatically altered our perspective on office space. In just a few short months, the number of remote workers jumped from 4.7% to 61.6% — a transition that has been called the “greatest change to the labor market since World War II.” In the commercial real-estate sector, we are still adjusting to the impact and can expect to see its effects for years to come.
