In a hybrid workforce world, what happens to all that office space?
Offices are getting smaller - or at least companies that own or lease office space are now using less of it, according to the 2022 Office Space Report compiled by workplace management software maker Robin Powered.
The company surveyed 247 business owners, facilities managers and those in charge of office space. The survey was aimed at getting a better idea of what companies plan to do with their all their cubicles, meeting rooms and offices in the aftermath of workplace changes brought about by the COVID-19 pandemic, the move to remote and hybrid work, and the Great Resignation.
Currently, 46% of businesses surveyed in July use no more than half of their available office space, and only 11% utilize all of their office space. Nearly half (48%) of all respondents say they use less than they did before the pandemic.
"What makes this even more significant is that 60% of those currently utilizing half of their office space or less had already downsized their original space from before the pandemic," the study reported.
When asked whether they plan to reduce office space in 2023, 46% of the businesses surveyed said yes - with 59% reporting they'll cut their current space by half or more.
And among companies currently operating with a hybrid work model, 83% are doing so to save money and 73% would shift to hybrid work cut expenses before considering cost-saving measures such as layoffs.
Building occupancy rates among the 10 most populous US cities remains below pre-pandemic levels - at about 43.6%, according to Kastle Systems, a managed security provider to more than 10,000 companies globally.
"There have been a few changes in leasing activity during the pandemic," said David Smith, head of occupier research at Cushman & Wakefield, a global commercial real estate broker. The average length of a new lease, for example, is down 10-15% since the beginning of 2020, though the average renewal lease length has grown slightly over the past year, according to Smith.
Another wrinkle affecting how businesses view office space: the prospect of a recession. Economic downturns typically lead building occupiers to rethink their portfolio, and the current slowdown is no exception, according to Smith.
"There is no one-size-fits-all solution," he said. "In some cases, occupiers have expanded their footprints because they have been hiring and see this as an opportunity to lock in high-quality space at attractive long-term rates. In other situations, occupiers have reduced the size of their office space, many times upgrading the quality of the building and space in the process."
The study by Robin Powered showed the average worker needs between 100 and 150 square feet of office space. For an office used by 250 to 500 employees, reducing that space could save anywhere from $625,000 to $3 million a year.
A turn to 'space optimization''
Amy Loomis, a research director for IDC's worldwide Future of Work market research service, said her research isn't showing an overall reduction in square footage, but said more companies my be subleasing unused space or reconfiguring it to better suit hybrid work.
The key phrase is "space optimization," which is being done to attract new employees and for environmental sustainability. In North America, 34% of companies surveyed by IDC said that was a key driver in real estate investments.
"What we're seeing is repurposing of office space," Loomis said. "Organizations are investing in office spaces and making them as dynamic, reconfigurable, and sustainable as possible.
"So, yes they left that building during the pandemic and predominantly went remote and hybrid, but as people are going forward into the new office space, it's more likely to be multi-purpose, multifunction, multi-tenant," Loomis added.
Many real estate developers now see the value in repurposing spaces to include not only room for commercial use, but also space for retail and even residential housing.
Creating a flexible and technologically upgraded office
According to the Robin Powered's study, 37% employees in companies surveyed are working in the office full time, and 61% are hybrid. The majority of hybrid employees (87%) spend two days a week or more in the office.
Of those in a new or smaller space, 81% have changed their office layout or design to support the new office demands. Those additions were made with flexibility in mind, with areas for hot-desking and socializing a staple of the new workplace. According to respondents, spaces being added include:
"The old modality of cramming people into cubicles is changing," Loomis said. "It's more about maximizing the value of the space for usage. That's about flexible walls, and screens, and cameras for people who are not on-prem so they can feel connected and engaged with people who are on-prem.
"It's using the space differently, both from a real estate standpoint and a technology standpoint. It's a blending of physical and digital space," she said. "There's a lot of experimentation going on. Each company, depending on vertical industry or how they function, [is] finding that right balance."
Cushman & Wakefield's research also noted a major shift in the way building occupiers lay out their space. "Since working from home has shown itself as an effective way to do focus work, office layouts are moving towards more collaborative space with a greater emphasis on teams interacting with each other," Smith said. "Additionally, office space is also often offering more wellness space and amenities."
Amenities most valued by employees range from the flexibility to come into the office for "fireside chats" with their CEO to pet daycare for pandemic pups with separation anxiety and even onsite massages. Employees want amenities and perks that demonstrate they are seen, valued, and appreciated in the office, according to a Cushman & Wakefield study.
To meet growing demands, nearly all industries are turning to properties with numerous amenities to attract and better serve the office-based workforce, the study noted.
A focus on sustainability
Sustainability has also become a big driver in repurposing and reconfiguring office space, as environmental consciousness is one of the top-cited reasons employees choose a new employer. In short, reducing a company's carbon footprint by making the most of the space they own or lease matters to workers.
In Europe, companies are shifting to more of a "hub-and-spoke" model of office locations, with a headquarters centrally located and smaller offices radiating out to accommodate a shorter commute for workers, according to Loomis.
"The situation in Asia is completely different. There's investment in refurbishing buildings to get them to be as modern as possible - also, making them multiuse, and multipurpose. You're seeing that a lot in the United States, as well," she said.
In April, IDC conducted a global survey and asked companies to describe their approach to support for onsite work. The top answer (50%) across the globe is they are "reimagining facilities as locations for training, meeting and collaborating," Loomis said.
Corporations are also investing in new office properties - in many cases federated offices that are smaller and located for a more dispersed, remote workforce. IDC found that 39% of those surveyed in North America are investing in new satellite properties. "I can't say if those are bigger or smaller, but they are to support a more localized, federated business model. In EMEA [Europe, Middle East and Africa], 30% are investing in new properties and 28% are leasing new digs in the Asia-Pacific market.
External factors are just as important as internal ones. When asked what the top business drivers were for organizations redesigning their worksites, the first was improved collaboration (55%), with cost savings second (34%).
Since January 2020, Google's parent company Alphabet has spent nearly $100 million expanding its US commercial real estate portfolio, including a $28.5 million office it bought in Sunnyvale, CA at the height of the pandemic.
More recently, Alphabet announced it would spend $1 billion for a campus-like office setting in London.
"We'll be introducing new types of collaboration spaces for in-person teamwork, as well as creating more overall space to improve wellbeing," Ronan Harris, managing director of Google UK, wrote in a blog post. "We'll introduce team pods, which are flexible new space types that can be reconfigured in multiple ways, supporting focused work, collaboration or both, based on team needs. The new refurbishment will also feature outdoor covered working spaces to enable work in the fresh air."
"There's a lot of experimentation going on," Loomis said. "Each company, depending on vertical industry or how they function, [is] finding that right balance."