COVID-19 has undoubtedly left an impact on commercial real estate, including both tenants and owners and operators of office spaces. While the pandemic has led many to reassess the importance of traditional office space, the level of confidence in having such a space is slowly rising to pre-pandemic levels, although the growing trend towards hybrid work can’t be ignored. In a survey conducted by BOMA, 1,267 office space decision-makers and influencers revealed that both corporate tenants and building owners and managers are shifting towards a redefined, reimagined work environment. Below are the conclusions drawn from the survey regarding the broader effects on commercial real estate caused by the pandemic, tenant attitudes towards physical office space and the office opportunities for commercial operators.
Reassessing the Office Space
According to the survey results, 70% indicated that they plan on reassessing their office space needs while 14% said they feel unsure. Compared to the results from the same survey conducted in 2021, these numbers indicate a rise in clarity among respondents regarding their office space needs, especially for those having large footprints and the highest rents per square foot. For most businesses, reassessing refers mostly to space reduction and reimagining of the office space, leaving the idea of the office as we know it in the past. Aside from the impacts of the pandemic, this decision is also based on the increased level of telework and the decrease in revenue faced by many businesses. In fact, 51% of respondents indicated that are likely to reduce their square footage, while 36% are either expanding or not changing their office space. As more businesses are sure about reassessing their office space needs, the concern regarding the increase in remote work (67%) and the high costs associated with office space (71%) are some major factors that respondents look at.
Changes in Office Occupancy
The return to the office has been a main subject of discussion for many businesses, as the wants and needs of employees are relevant to the well-being of the company. As such, asking for their opinion is essential to deciding on the office space. According to the survey, 76% of respondents indicated that their employees are supportive of the return to the office initiative. This indicates that employees feel safer in returning to the office than they did in the previous year, allowing for an easier push to a such transition.
However, the concern that getting re-used to an in-person office setting might be a challenge for some employees is something many businesses are aware of (60%). Despite this concern, only 29% of respondents indicated that they are pushing towards mostly or full-time remote work in the upcoming 12 to 19 months. As Robert Teel, senior vice president of Global Solutions at Yardi puts it, “This study confirms that decision-makers are comfortable returning to offices, their colleagues share that level of comfort, and there is demand for investments that make employees safe and foster greater collaboration.”
However, hybrid work is something employees are not willing to give up completely, as 60% support at least 3-4 days per week in the office, with 61% of managers feeling the same way. Also, 10% of respondents indicated that they would prefer establishing company-provided office spaces close to the homes of employees, supporting an employee-defined hybrid arrangement. Some of the main factors for hybrid work include family obligations, commuting costs and time and the overall wellness benefits of remote work.
Having an In-Person Office Space is Essential
While hybrid work is likely here to stay, the importance of having an in-office person space is considered to be vital by 86% of tenants nationwide. With a push towards returning to the office, 57% of respondents expect to see “more value” in their office space as employees show enthusiasm towards working from the office to embrace collaboration and have a “home base” community for connection.
With the established idea that having an office space is essential, the majority of survey respondents indicated that they are planning to renew their leases (72%). However, 54% also indicated that they prefer renewing for a shorter lease term of 3 to 5 years instead of 7 to 10. However, economic pressures, such as inflation and supply chain issues, are also deciding factors in renewing leases. In fact, tenants are likely to demand more value and ROI from their spaces going forward, with 36% of respondents indicating that they are currently seeking new infrastructure and technology to prevent the spread of pathogens, a common issue for businesses since the beginning of the pandemic.
Furthermore, the office may be essential, but what it offers tenants is more important than the space itself. A priority for tenants is having an office space that supports remote and hybrid workers. This includes opportunities that support things such as professional development events, commuting incentives and more social events, to name a few. Also, safety measures against pathogens are important and encompass infrastructure, flex space and technology amenities. In fact, even office space owners and operators support COVID-19 safety protocols, with 76% indicating their support in providing sanitizer and continued disinfection of common spaces and 73% wanting the integration of fresh air in HVAC systems.
The return to the office has led many companies to understand the value of having an office space. However, hybrid work is here to stay and finding a way to balance the needs of employees with those of company leaders is essential to the well-being of a company. As such, corporate real estate is finding itself in a transition phase in which tenants are changing they way the see and use the office, while owners and operators are given the opportunity to turn their spaces into the “home base” for companies.
Yardi Corom is a simple and comprehensive accounting, lease and workplace management solution for CRE tenants. Our cloud-based software solution increases efficiency and accuracy across your entire lease portfolio: manage leases and subleases, track key lease data, centralize transactions and become FASB/GASB/IFRS compliant. To learn more, you can visit our website or schedule a meeting with our team.
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