Q: Employers across the globe are announcing return-to-office programs. What are leasing volumes and surveys telling us?
Not surprisingly, global leasing volumes are down about 30%. In the U.S., they are even lower, off 45% in the first quarter. More than half of those leases (56%) are renewals. Recent surveys show that the majority of firms, particularly big employers, are waiting until later in the year to decide whether to return to the office full time. Those surveys showed three out of four firms expect about 20% of their employees to work from home two days a week. Interestingly, more than half the firms surveyed expect to increase the amount of floor space per person by as much as 20% for health and hygiene reasons, and to accommodate more collaborative working styles.
Q: Balancing the various office space trends, do you think floor area will increase or decrease?
On average, we believe employers’ decisions to offer flextime and to lessen worker density in prime core office space will offset each other; overall prime office space demand will be much less affected by working from home than in secondary office locations and of secondary quality. However, we think companies in traditional workspaces, lined with individual offices, will opt to cut costs – particularly in the next economic downturn – by moving to higher-density open-plan offices that are common in crowded cities like New York, Singapore, and London. These open-floor-plan layouts can shrink needed space by about 20%.
Longer term, the office of the future will not just feature an open floor space, but will likely have a contemporary, event-collaboration or café look and feel.
Q: Does the outlook for office space demand differ by region or between urban and suburban areas?
Looking at cities around the world, we find that occupancy and rent levels align broadly with population density, rather than gross domestic product (GDP) per capita, as many would assume. In turn, higher-density cities tend to have open-plan offices that can fit more people in the same space. With this in mind, we believe higher-density cities might be more resilient to the work-from-home trend. They’ve already maximized space with open plans. And if space is given back because businesses fail, there are more alternative users of space in a higher-density city. This asymmetric supply and demand dynamic is marked by a fixed number of very high quality buildings, and many diverse users that might be available to take that space.
Asia has the highest-density cities in the world. People are already back at work in Asia and we’ve seen the office sector perform very well. The growing economy in the region is also contributing to strong demand for office space.
In Europe, the trend toward going back to the office is ongoing. Some cities, like Paris or London, are very dense and already have open office layouts, leaving little room to consolidate space. But in many medium-size cities, there may be a space give-back underway as offices convert to open floor plans. However, unlike Americans and, to some extent, Asians, Europeans do not relocate as often, tending to stay in the city in which they grew up. This provides a floor under the market and a certain level of stability and recurring income, despite the space give-back.
