Several years removed from the Covid-19 pandemic, the commercial real estate industry is still adjusting to the significant changes that have followed. The reality is that so many factors contribute to success in commercial real estate, and it’s this combination of these factors that lead to strength and stability in the market. First and foremost, the workforce has changed and is preparing to see more of the same in just the next 2 years with the evolution of Gen Z. The needs from office space, effected by a workforce with changing work habits look much different. Office footprints are trending smaller, the character and functionality of entire buildings and classes of real estate are evolving, and the economics of rising interest rates and landlord stability are in question. Regardless of the factors at work, the result is clear, the office is different.
Change Continues Years After Covid-19 Pandemic
A recent report produced by Robin, an industry-leading desk and room booking software platform provides a unique snapshot of the changes and continued evolution of office. Robin surveyed over 500 business owners for their report, and here are a few of the highlights:
- People are coming back to the office: 88% of companies mandate employees work a certain number of days in the office.
- 80% of offices have downsized since the pandemic. That’s a 20% increase since 2022, suggesting that they have increased the utilization of their smaller spaces.
- 89% of offices are changing the office layout or design to support new employee demands. Key amenities include soft seating/lounge (60%), collaboration/huddle rooms (58%), quiet rooms/booths (54.31%), wellness spaces (53.18%), and hot desking (52.81%).
These topics are top of mind for business owners and building owners and investors, but the numbers can be a little surprising. Overall, it points to a handful of trends that continue to strengthen as we edge into 2024. Of primary interest is the dedication to return to work policies, an adjustment to the overall size of office space, and the utilization of the space by a changing workforce – in one word – flexibility.
Office Space Needs Are Different
The needs of office space tenants are always changing, but the current evolution is worth noting. Commercial real estate markets are seeing significant changes in available inventory, rental rates and terms, building amenities, and improvements as owners work to attract and retain tenants. It’s clear the office footprint is being reduced in most instances, with a renewed interest in the very best spaces the market has to offer. Even those highly amenitized buildings will need to work with tenants to understand the flexibility needed in programming space within the tenant footprint. With return to work missing the 5 days in office threshold, less space is needed and assigned workstations and offices are fading. Successful buildings showcase spaces that are unique, comfortable, open, and flexible in how they are utilized by tenants. Current spaces are underutilized, and movement in the market reveals a desire to reduce the physical footprint and maximize quality and employee experience. Yes, it can work.
A Focus on Flexible Workspace
The post-pandemic conversation has typically focused on work schedules, hybrid models, and workplace strategies. Those remain very important topics and the impact on office is easy to see as things continue to evolve. Most offices are open to remote work with employees working from a remote location a day or two each week, staggering start times to better accommodate work-life balance, and creating spaces that a new generation of office tenants can see value in and ensure productivity.
Return to work and a changing workforce present challenges that are real. The pace is irregular and the results are creating a new normal, but the direction is revealing what it looks like to have an office that works for your tenants and employees. The office model is evolving with an even greater focus on smaller footprints, more comfortable and open spaces, an abundance of amenities, all combining to create an office that is more welcoming and therefore productive than ever before. The most successful office tenants are focused on spaces that allow small groups to work alongside one another, provide areas for solitude, and showcase open and event type space. This arrangement collectively meets the needs of a wide range of employees and is a direct reflection of the flexibility companies have grown accustomed to in managing their employees. Employees can work anywhere in the office, without the need for an assigned work area, the office design has no limits.
A New Generation of Employees – Gen Z
An often-overlooked aspect of the new office conversation is the actual employees in the space. While we give a lot of attention to their work needs, not a lot of time is dedicated to their tendencies, preferences, and interests. Realize they are connected. It’s worth noting that by 2025, Generation Z will make up 25 percent of the workforce. Their needs related to office space and the workplace overall are in conflict with many current models. One of the most notable items is the strong emphasis Gen Z places on physical well-being and mental health.
Research conducted by Georgetown University, in partnership with Bank of America reveals about one in four Gen Zers (24%) strongly agree that their employer has policies or structures in place to support work-life balance. Obvious rom for improvement and a great example of how generational traits can be welcomed in the office design.
The office design should promote employee health through features like ergonomic furniture, natural lighting, and indoor plants. Additionally, offering spaces for meditation, yoga, or relaxation can help employees manage stress and maintain their overall well-being. An on-site gym, healthy snack options, and access to mental health resources are also valuable additions and support a healthy work-life balance.
Projections for 2024
Looking ahead, engaging with tenant populations and business leaders who have their finger on the pulse of their employees and an eye on productivity will continue to be the best guide to success. Building owners and landlords will need to remain flexible in negotiations, provide top of the line product and amenities, and engage more than ever with their tenants and real estate professionals. Even with a renewed focus, 2024 holds a number of stark realizations. Office product will either improve or be repurposed and tenants will seek the opportunities they know exist. Fully amenitized, flexible space designed for a reimagined way of working will be a target for tenants on the move, and successful landlords will work to meet those demands, creating some great office spaces.