Are offices necessary?
Few real estate topics generate as much debate. It’s a crucial question within the commercial property industry since there probably are more dollars committed to office buildings than any other property type. Outside the industry, it touches on the daily lives of many.
I’ve noticed a severe disconnect between the views of people within and outside the real estate industry. Property executives stress the benefits of in-person office work; how young people want to return to the office to make connections, collaborate and get mentored; how people are tired of Zoom meetings or working in their pajamas, etc.
Outside the industry, however, I don’t know many people who want to commute regularly and go back to the office unless they absolutely must. Everyone I’ve met whose jobs permanently change to mostly or fully remote are without exception happy.
Few young workers I’ve encountered think of their careers in terms of mentorship and long-term arcs. They’re mostly focused on their immediate work conditions and pay. For most of those raised in the Internet era, working on their laptops at home is a feature, not a bug. And given the shortage of skilled young workers and difficulty companies have preventing valuable employees from being poached, companies have no choice but to accommodate their desires while raising pay and benefits.
Why So Optimistic?
There could be many reasons why the CRE industry may be out of touch with my experience. One possibility is that my experience is not representative. Excluding that, my best guess is a “talking your book” phenomenon. Individuals whose business is selling commercial space naturally want to promote the benefits and necessity of office space.
Another explanation for excess exuberance could be that the pessimistic scenario is disheartening. A sharp drop in demand for offices creates many negative implications for the industry. Much easier to believe that things will work out with minimal disruption.
The nature of our jobs might also play a role. Meeting in person and collaborating with teams is more valuable in finance and real estate than other office-using tasks such as data entry or computer programming. The property industry’s view of the office work experience likely differs from the views of those in other office-using industries.
One thing the CRE industry gets right is that offices are still necessary. The office market is facing a period of painful disruption, but what exactly that entails remains to be seen. Today, onboarding generally involves grafting a few remote newcomers onto a functioning team. Will that be as efficient in five or seven or 10 years, when entire teams are remote and have never been together in person?
Also, much of the leverage for remote work today is on the side of workers, who can demand terms because of the labor shortage. The dynamic changes, though, if the economy slows, unemployment rises, and the leverage turns to the employers’ side. Under that scenario, how many corporations will demand more in-person attendance?
More Questions Than Answers
In the end, my forecast for office space involves a lot more questions than answers. It’s an easy call to say that demand for offices will decline. Many companies have space they aren’t using, and that will prompt cutbacks when leases expire in coming years. That will be offset to some degree by overall growth in office employment and large firms maintaining premier office spaces to attract talent.
Still, demand over time is likely to be negative relative to pre-pandemic levels. Office buildings that aren’t properly amenitized or in bad locations will likely lose tenants and be converted to other uses. Early indications are that rents will level off and office landlords will be forced to reinvent space and spend a lot on tenant improvements.
Beyond that, office work will continue to evolve.
Read the full analysis: The Future of Office: Is CRE Out of Touch?