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Monday, Apr 15, 2024

Hybrid Work and the Future of the Office

As companies and employees absorb the lasting changes in work patterns brought by the pandemic, office occupiers are seeking out well-located buildings with amenities that lower the burden of commuting to work, according to a recent report, “Hybrid Work and the Future of the Office,” published by the NAIOP Research Foundation in conjunction with CBRE. Newer office buildings are generally outperforming commodity buildings as a result, but not all older buildings are struggling to the same degree, with the largest increases in vacancy concentrated in poorly located buildings with few amenities.

Occupier surveys suggest that hybrid work arrangements remain in flux, and many expect office attendance to increase, supporting demand for space in both newer and older buildings. Although high interest rates and construction costs are deterring building owners from making significant renovations in the near term, older buildings in convenient, safe locations with access to adjacent amenities should be attractive to more cost-conscious occupiers as office utilization rises.

Among the report’s additional key findings:

• Although the expansion of hybrid work schedules has accelerated a decline in the amount of occupied office space per worker, there is greater demand for shared meeting and coworking space that allows occupiers flexibility to accommodate more employees on busier days. Many are willing to pay for these spaces on a per-use basis or through a provision in their leases.

• Many occupiers are trading quantity for quality, preferring smaller office footprints in conveniently located modern buildings with amenities that will draw workers to the office and improve productivity.

• Occupiers are looking for buildings that make commuting easier, with ample parking, access to public transit and on-site amenities. They also increasingly prioritize sustainable design features and access to outdoor space.

• Office use is likely to grow, with 38% of occupiers indicating they expect utilization to increase and 60% indicating that utilization has stabilized.

• One-tenth of US office buildings account for 80% of the overall increase in vacancy since the first quarter of 2020. These commodity buildings tend to be in high-crime areas, lack access to amenities, and are concentrated in markets that have been slower to return to the office. Other commodity office buildings are performing better than the average vacancy rates would suggest.

• Only a small proportion of the most functionally obsolete office buildings are good candidates for extensive renovation or conversion to new uses. Current tight lending standards, higher interest rates and higher construction costs have made many rehabilitation and conversion projects cost-prohibitive, absent public subsidies.

Contributing authors of the report are Emil Malizia, Ph.D., of University of North Carolina-Chapel Hill and Malizia & Associates, LLC; Shawn Moura, Ph.D., NAIOP; Dustin C. Read, Ph.D./J.D., Clemson University; Jessica Morin, CBRE; and Julie Whelan, CBRE.

“The report finds that occupiers expect office utilization to increase, which should help to stabilize demand for office space. Companies are refining their work from home vs. in-office policies; at the same time, office space must meet the needs of employees in terms of location, flexibility and amenities to remain viable,” said Marc Selvitelli, CAE, president CEO of NAIOP.

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