US companies that planned to downsize their office real estate during the pandemic are now rethinking their plans.
Only 9% of large US companies, defined as 10,000 employees or more, anticipate their office portfolios will get “significantly smaller” over the next three years, according to a new report from CBRE, a commercial real estate company. That’s down from 39% from last September. The survey included responses from 185 US-based companies.
Why the drastic drop? The initial reaction for many companies was remote work was going well, so people are going to spend less time in the office and need less space, says Julie Whelan, the head of occupier research for the Americas at CBRE. But as the pandemic dragged on, cracks in the remote work revolution started to form. People reported feeling more isolated, a lack of connection with colleagues, and questioning whether they were being more productive.
“What we’re finding is a lot of offices say, ‘I’m going to sit back and just continue to kind of do nothing, and wait 18 months, and see what the world holds,” she says.
For instance, although tech companies have announced remote-friendly policies, they continue to build sprawling campus-like offices in the pandemic. This ensures they will have the space needed for workers to come back to the office despite uncertainty around when that will happen, says Whelan.
“Office space is kind of under fire today simply because we know a new way of work is coming,” she says. “We’re really grappling in our heads with whether that’s going to mean less demand.”
A big office experiment
Most companies anticipate employees will spend at least half of their time in the office, the CBRE survey found. But the drop in time spent at the office is not going to directly translate to less space, says Whelan.
First, companies still need to balance how many people visit the office, and plan for the type of occupancy they will have each day. Second, she says the office will become more collaborative. The most popular amenities favored by companies surveyed were shared meeting spaces and “flexible open” layouts, which require bigger floor plans. Companies are also thinking about hiring more workers.
The share of large companies planning for modest office-space reductions rose to 72% this spring, up from 45% in September, the CBRE survey shows. All those factors mean companies will need less office space, but more than they once assumed, Whelan says.
Overall, the return to the office has been slow. The weekly office occupancy rate shows that the average occupancy rate in the 10 largest US cities was 29%, according to Kastle, a property management company that tracks access-card swipes from 2,600 buildings and 41,000 buildings across 47 states.
As the US office market starts to recover in mid-2022, rents will return to pre-crisis levels in early 2025, CBRE forecasts. Historically, the office market rises and falls with unemployment, says Whelan. But even with the economic recovery, she says, the slow office return is due to concerns of feeling comfortable being back at the office.