Office, hybrid or remote?

Real estate professionals have long embraced a hybrid work environment, with work regularly extending from the office, to the car, to the home. But now that everyone else seems to be working a hybrid work schedule, what will happen to the office?

As of June 2022, just 44% of office workers are reporting in-person to work each weekday, according to a Kastle Security Systems analysis of its 41,000 offices in 47 states.

With the pandemic response now behind us here in the U.S., owners and leasers of office space are eagerly waiting the return of the remaining 56%. But is it possible remote work will continue even in a post-pandemic world?

There are two possibilities for the future of the workplace, including:

• employers embracing a hybrid work model, where employees only come into the office part-time; or
• workers returning fully to the office, as in the pre-pandemic environment.

Under the hybrid work model, a gradual 10%-20% decline in demand for office space will occur over the next decade, according to the Mortgage Bankers Association (MBA). This will lead to a decline in rents and prices, along with reduced net operating income (NOI).

On the other hand, the MBA forecasts a full return of workers to the office will create a bounce in demand, higher prices and rents. Given the demand slump for office space during the pandemic, this scenario will be less of a “boom” scenario for office and more of a return to normalcy.

Here in California, office vacancy rates remain above pre-pandemic levels, casting doubt on a swift recovery.

Employers planning for more flexible arrangements expect the hybrid workplace to continue in the years to come. For example:

• 76% of companies plan to reduce dedicated seating;
• 64% of companies plan to use more activity-based work spaces; and
• 63% of companies plan to use more “hot desks.”

In total, 73% of employers who currently occupy office space expect a hybrid system of work to prevail in the future, while 4% expect to go fully remote.

The future of office space

The future of the office industry remains, as ever, highly localized and specific to the quality and availability of space. However, a broader trend is emerging, which points to a shift — not a return to the past.

The small share of employers who go fully remote will shed their offices, eating away at demand in small bites.

But the majority of employers who retain an office will also be looking for something different — a more flexible space, and one that attracts employees to come in to work.

Therefore, office spaces with flexible, open work plans (as opposed to dedicated offices) will become more desirable. With this requirement for more open space will also come the ability to get work done in less space, since employees will not all be in the office at once.

With less square footage required, more employers will be able to afford a higher price-per-square-foot, catapulting demand for Class A space, and to an extent, Class B space.

Property managers of office space will need to get creative to remain competitive in the years of change ahead. Making improvements and even converting property into mixed-use space and other desirable uses will give these spaces a leg up as the hybrid office settles in for the long haul.

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