Offices Entering a New Normal
Guiding Question: How will the increasing trend of remote work, evolving employee preferences, generational shifts, and the need to foster corporate culture and collaboration influence the design, demand, and strategic management of office spaces in the long term?
There is no question that our lifestyles have changed in many ways since the start of the COVID-19 pandemic. One change is where (and how) we work.
Urban Land Institute and The Instant Group collaborated on a research project in Spring 2023 to evaluate how evolving occupier (worker) behavior and greater macrotrends of such shape workspace demand. The study included a global survey targeting key decision-makers among office occupiers and landlords, supplemented by interviews and roundtable discussions with industry experts. Findings from the study revealed that a mere 14 percent of occupants believe their current workspace setups fully align with their business objectives and strategies (Chinn, 2023). Despite this, offices remain crucial in occupiers' workplace strategies for expressing corporate culture, fostering collaboration, and mentoring new and younger team members. Increasing remote work trends, employee preferences, and the need to foster enhanced corporate culture will lead to a decline in onsite office use, leading to a shift in the use of office spaces to other utilities. Looking ahead, the future of remote and hybrid work as well as the evolution of workplace design and functionality are poised to reshape office utilization, driven by changing demands and broader macroeconomic trends.
Remote Work
Now and in the near future, significant declines in demand for office space are expected, while hybrid work will become the new standard.
The increasing trend of remote work is poised to significantly influence the long-term demand for office space. Structural shifts within the occupier sector, coupled with concerns about obsolescence, have caused office investment to plummet to its lowest level since the 2008–2009 Global Financial Crisis. Specifically, the share of offices in total global real estate investment has declined from 34 percent in 2019 to just 23 percent in the first half of 2023. Since 2020, the residential sector has emerged as the dominant sector for real estate investment, capturing a 27 percent share (Chinn, 2023). Perhaps the emergence of the residential sector can be attributed to the COVID-19 pandemic, which saw many people leaving the office and being more inclined to move or buy secondary homes.
Globally, office occupancy rates remain below pre-pandemic levels across many sectors and cities as the shift towards hybrid and flexible working patterns becomes the most enduring outcome of the pandemic. This transition, where employees split their time between home and the office each week, has reshaped the landscape of office usage. Therefore, it stands to reason that employees may even choose their work settings based on the quality of the office spaces.
Class A office properties, which are more luxurious and provide better amenities for employees, have fared better than their B and C counterparts. In the first quarter of 2023, nationwide vacancies for Class A offices stood at 18 percent, while Class B and C offices experienced a vacancy rate of 20.2 percent, according to Moody's Analytics (Grappling with Office's Future, 2023). However, the low vacancy rates are not necessarily a concern from the employer's standpoint.
Regarding the maintenance of hybrid work models, a considerable number of companies are planning to continue this approach, which will further affect office occupancy rates. Based on data from access swipes, current measurements of physical office occupancy indicate that the European average is approximately 55 percent, while the United States averages 47 percent. These figures are about 15 to 20 percentage points below the pre-pandemic average of 70 percent, accounting for variables such as travel, off-site meetings, vacations, and sick leave (Chinn, 2023).
Around the world, the extent of worker presence in offices fluctuates, yet in numerous sectors and cities, office occupancy continues to lag behind pre-pandemic levels. The most lasting consequence of the pandemic has been the transition to hybrid and flexible working arrangements, where employees divide their time between home and office each week. The demand for office spaces versus remote work is directly related. As more companies adopt a remote business model, the need for physical office space will diminish.
Workplace Design and Functionality
If current workplace trends continue, companies choosing to maintain their in-office work environment will more likely than not be met with pressure to redesign their spaces to accommodate employees' new workplace standards. After several months away from the office, it is essential that employers reestablish a sense of culture, partly by creating a more contemporary professional space.
Potential tenants now have higher standards when it comes to office buildings. Office occupants increasingly favor better-amenitized, more sustainable buildings that offer high-quality workspaces and actively engage employees. While location has always been crucial, its importance has heightened significantly. A well-connected location within a vibrant cultural hub is a key strategy for landlords to future-proof office buildings, particularly given the trend toward smaller office footprints.
In contemporary commercial properties, there is a growing emphasis on high performance and sustainability. Recent constructions, especially those developed within the past decade, integrate upscale health and wellness facilities, outdoor access, advanced property technology capabilities, and integrated technologies to enhance energy efficiency (Grappling with Office's Future, 2023). Moreover, environmental, social, and governance (ESG) factors are paramount for Class A properties, often manifesting in formal certifications such as LEED Platinum, WELL Platinum, and WiredScore Platinum, alongside high Walk Scores (Grappling with Office's Future, 2023). In response to evolving work patterns, companies are increasingly prioritizing the environmental credentials of their office spaces. Adopting renewable energy sources, including LED lighting, efficient HVAC systems, and solar panels, reduces operational costs and enhances indoor air quality and user comfort, contributing to greater occupant satisfaction (Chinn, 2023). In addition to energy efficiency, having widespread cell phone coverage throughout the building is not just a wish, but an expectation.
In response to changing occupancy needs, trends in office layout, such as the shift from traditional layouts to more flexible arrangements, are expected to emerge. The prevalence of hybrid work models, necessitated by the pandemic, has not only prompted building owners and occupants to reconfigure office spaces but also reduced demand for office properties and subsequently lower effective rents (Grappling with Office's Future, 2023).
Various factors that will shape future office building design significantly influence industry professionals. These include allowing open and collaborative workspaces, providing healthier building options, designing for hybrid workforces, ensuring flexibility of use, incorporating public spaces for social distancing, and offering additional onsite amenities and services (The Future of the Office, 2023).
Decisions on office occupancy will be increasingly influenced by the need to foster corporate culture and facilitate team collaboration. According to Tony Scacco, Chief Operating Officer at Riverside Investment & Development, the quality of office space plays a crucial role. Strong in-office work policies and high-quality office environments signal to employees that the company values performance and invests in its people (Grappling with Office's Future, 2023).
To maintain productivity and innovation, companies are increasingly seeking a balance between remote work and in-office presence. This approach drives demand for offices designed for activity-based working (ABW), where environments are optimized to support various tasks. Occupiers prioritize offices that offer flexibility in workspace utilization throughout the day, emphasizing both functional efficiency and a conducive workplace experience (Chinn, 2023). According to Tony Scacco, while overall net demand for office space may remain subdued compared to pre-pandemic levels, there is a notable preference for higher-quality spaces that can attract employees back to the office. This trend is reflected in businesses' relocation decisions, with a strong inclination towards newer office buildings equipped with superior amenities (Grappling with Office's Future, 2023).
The future of office spaces is undergoing a profound transformation shaped by the evolving dynamics of remote work, shifting employee preferences, generational changes, and the imperative to nurture corporate culture and collaboration. As organizations navigate these changes, they must rethink traditional office designs and functionalities to accommodate hybrid work models and optimize workspace utilization. This evolution is not merely a response to current trends but a strategic adaptation to enhance productivity and innovation while meeting the diverse needs of modern workforces. By embracing flexible and sustainable office environments that prioritize employee well-being and engagement, businesses are poised to thrive in a post-pandemic era where the office serves as both a functional workspace and a cultural hub. As highlighted by recent research and industry insights, the journey towards redefining office spaces promises to be pivotal in shaping the future of work.
Works Cited
Chinn, S. (2023). The Future of Office: Global Decision-Maker Survey Looks at Macro Trends Affecting Workspace. Washington, D.C.: Urban Land Institute. https://urbanland.uli.org/economy-markets-trends/the-future-of-office-global-decision-maker-survey-looks-at-macrotrends-affecting-workspace
Grappling With Offices' Future. (2023). New York, New York: JP Morgan Chase.
The Future of the Office. (2023). Washington D.C.: U.S. Chamber of Commerce. https://www.uschamber.com/economy/the-future-of-the-office-survey
