The Future of Office? Apply Global Theories for Local Solutions.
Ben Kuykendall
The National Narrative
Flight to quality? Hybrid work? Forced return to office?
When it comes to office as an asset class, no one seems to know what’s next, or whether that next thing is here to stay once it gets here.
What is known? Nationally, fewer than 50% of knowledge workers have returned to the office post-COVID.
According to Kastle, a leading office key fob manufacturer, only 47.9% of employees were in their offices the week of 10/19/22 across the 10 largest US office markets1.
Kastle’s data shows that the three major Texas metros lead the way with just over 50% return to office, and that the top seven coastal office markets are all below the national average at a combined 44.7% attendance rate.
While COVID sent American office workers home, the leading expert on remote work, Stanford economist Nick Bloom, has theorized that an impending recession may actually keep many of them there2.
Bloom’s firm, WFH Research, published a June 2022 survey of 21,000 Americans showing the following remote work distribution, which has remained relatively unchanged over the past six months:
- 15% are fully remote
- 30% are hybrid
- 55% are on-site full time
The prevailing wisdom seems to be that rampant inflation will soon bring widespread layoffs, and that anyone who doesn’t want to be back in the office full-time will be offered to stay home full-time – without pay.
Bloom and his research say otherwise. As an employee recruitment tool and a productivity booster, Bloom’s data shows that hybrid work can be a benefit to many companies3.
- The average WFH employee saves 70 minutes a day in commute time, with 30 of those minutes spent working.
- US workers surveyed responded that they value hybrid work equally to a 5% pay raise – would employees agree to a 5% pay cut to maintain their flexible schedule during recessionary cutbacks?
- Quit rates during the Great Resignation are “clearly down”, by as much as 35% according to one survey, across companies offering remote and hybrid work.
The Local Reality
Headlines, surveys and thought leaders aren’t always going to capture the reality of each unique market. Brokers on the ground have their finger on the local pulse while also leading with best practices drawn from data like that provided by Bloom above.
Tom Koelzer, with Tenant Advisors/CORFAC International in Schaumburg, Illinois works with office users in the Chicago market. Chicago is in the midst of an historically high vacancy rate in their office market (96MM SF – 18.8% of total inventory4), giving potential tenants more options, and leverage, in their space search.
Not surprisingly, Koelzer draws on the wisdom of the Stanford economist for his primary piece of advice for his office tenant clients
“We recommend clients start by getting a handle on their new “in the office” policy. That is, how many employees are in the office on each day? Does every employee need his or her own workspace? Do employees need dedicated quiet space or multipurpose space for meetings and collaboration?”5
In the Orlando market, the Maitland Ave. corridor has served as a microcosm of the broader Orlando office market over the past two years. Our firm has been especially busy in the Maitland submarket, with smaller offices transacting regularly among growing local businesses – for both leasing and owner user purchase deals.
As Florida returned to normal ahead of almost every other part of the country, while experiencing an incredible population boom, residents returned to work (not to mention beaches, shopping, and theme parks) well before the rest of the country.
Of course, local employers have responded with flexibility and hybrid arrangements, more than anything for employee recruitment and retention. The overall story in the Orlando market hasn’t been that of tenants vacating their office space, but instead downsizing and/or rethinking their office footprint.
Beyond larger firms rethinking their space, a number of home-based and smaller scale businesses have continued to thrive in the Florida economy and are eager to grow their operations beyond their kitchen table, or in a daily setting among their growing and eager staffs.
Opportunities for Success
What we’ve seen in Maitland this year points to an opportunity for success for Landlords and Sellers who can offer simple, flexible space at attainable prices and are motivated to work with Tenants and Buyers to get deals done.
Ultimately, from what we’re seeing locally, the future of office is less about broad-brush, macro solutions around hybrid work, amenities, and buildout. It’s much more about exactly what type of firms are occupying office space in the local market and why, with the onus on property owners to offer flexible solutions for tenants just like employers are for employees – possibly even more so.