By 2025, hybrid work is projected to be the dominant work model for many companies across the nation. With over one billion square feet of office space available for lease, and approximately 150 million square feet of leased space set to expire in 2025, CRE investors are faced with increased pressure to attract and retain tenants. In this blog, we’ll explore how this shift is altering the way tenants view office space and how CRE investors can adapt to meet the evolving demands of hybrid work models.
In August this year, ResumeBuilder.com conducted a survey of 764 companies that transitioned to a fully remote work model at the onset of the COVID-19 pandemic. According to the results, the companies’ return-to-office (RTO) plans presented the following:
- 64% have a policy that requires some or all employees to work from the office at least part-time.
- 23% plan to implement such a policy by the end of 2025.
- 7% plan to implement such a policy in 2026 or later.
- Roughly 6% of the companies do not have such a policy in place.
- 30% of the companies are requiring employees to return to the office full-time.
- A majority of the companies are operating with a hybrid work model.
As companies continue to prioritize employee satisfaction and wellness initiatives as key retention and recruitment strategies for top talent, hybrid work models have become a popular option in RTO policies, since they offer flexibility while also maintaining in-person collaboration. Some of the top companies leading the way in successful hybrid work models include Amazon, Google and Airbnb. For a list of the top 13 companies reported by OfficeSpace, along with details about how these companies executed their work plans, click here.
According to Cushman & Wakefield’s Office Fit Cost Guide, the cost of redesigning office space differs by location, mainly due to the varied cost of materials and labor. For instance, the average fit out price per square foot in Atlanta is $159; for Chicago, $173; for L.A., $178; for New York, $213; and for San Francisco, $223. For CRE investors and property managers to make informed investment and operating decisions, they’ll need to evaluate the needs of their tenants, focusing on occupancy rates, space utilization and tenant feedback. Keeping an eye on the cost of fit outs and current trends can help investors make knowledgeable decisions about their portfolios and investments.
Current Design Trends
Traditional office space is becoming increasingly obsolete. Fixed locations with designated desks and meeting rooms are transforming into hybrid models that allow employees to work from home while still having access to a physical office with a welcoming, well designed and technically optimized environment for collaboration and meetings when needed. Essential office designs for hybrid work models generally include, but are not limited to, the following:
• Hot-desking. Flexible workspace arrangements where employees don’t have assigned desks and use available space at any time. The space is utilized on a first-come, first-served basis, or by reservation.
• Task-zones. Activity-based work (ABW) zones that allow employees to be more productive in fulfilling a specific need or task. Some examples include collaboration zones for group work, brainstorming and discussions; quiet zones for focused and individual work; and private zones designated for personal breaks.
• Office pods. An office pod is a soundproofed and mobile room that can be used as a private space for employees. They come in a variety of sizes, from smaller phone-booth-like pods for individuals to larger ones that supplement traditional meeting rooms. A recent cost study found that utilizing office pods instead of building new meeting rooms can significantly lower costs, with estimates suggesting potential savings of over $30 billion between 2023 and 2030.
• Work cafés. Open café workspaces have steadily gained popularity over the past decade. Taking cues from coffee shops, these spaces offer coffee, teas and small lounge areas or tall tabletops for employees to work over a cup of coffee or connect with a colleague. According to research, these in-person social encounters can help promote teamwork, generate ideas and foster emotional connections that support employee wellbeing.
• Health and wellness spaces. Office space that is centered around health and wellness remains a popular trend. Enhanced indoor air quality and biophilic design that connects tenants to nature by incorporating plants, natural light and water elements are top design elements. Dedicated fitness areas, walking paths and wellness rooms designed to reduce stress and boost morale are also popular. These amenities help to promote a healthy lifestyle and improve cognitive performance.
• Eco-friendly practices. Tenants are increasingly prioritizing eco-friendly practices, like energy-efficient systems, sustainable materials and green certifications. This shift not only helps reduce environmental impact but also enhances property value. It can also help CRE investors and property managers realize cost savings through incentives and lower operating expenses.
• Technology integration. Secure digital infrastructure, cutting-edge video conferencing features, and dependable, fast internet are essential for hybrid work. Tenants in a hybrid work model are likely to be drawn to properties that have pre-wired, high-tech areas designed for high-quality audio and video conferencing, wireless screen sharing and the ability to utilize other collaborative tools.
The integration of smart technology and artificial intelligence (AI) in office space will continue to revolutionize the way people work. Smart technology, such as IoT devices like automated lighting and climate control systems, also creates more efficient and responsive environments. AI-driven tools enhance productivity by automating routine tasks and providing data-driven insights for better decision-making.
Conclusion
The Office sector is in a period of ongoing transition as hybrid work shifts to the new norm. Although there are unique challenges to navigate, CRE investors can still find ways to maximize existing portfolios and find new investment opportunities in certain corners of the market. Savvy CRE investors may wish to conduct market research, utilize a due diligence checklist and have a clear understanding of the shift in office trends before making any investment decisions.
At Old Republic Title, we remain committed to supporting CRE investors and property managers as they transition their office spaces from traditional to hybrid work models and realign their office portfolios. Our National Commercial Services team is here to provide customized commercial services whether your project is simple or complex. To learn more about our services and to connect with a team near you, visit oldrepublictitle.com/commercial/ncs/.