Keller Augusta Partners

What Commercial Real Estate Earnings Suggest About the Future of Work

What Commercial Real Estate Earnings Suggest About the Future of Work

Nov 16, 2022

“Social and environmental factors, such as an office space’s impact on the local community and its energy efficiency, are also top of mind. People are certainly looking at the office differently than they ever did before,” said Kaitlin Kincaid, senior managing director of commercial real estate search and advisory firm Keller Augusta, told HR Brew.


Working from home can be frustrating. Employees have to restock their own coffee pods, wash endless amounts of dishes, and fix their own broken printer or computer. Still, many workers prefer the minor inconveniences of remote work over having to commute to an office. And if their Q3 earnings are any indication, commercial real estate companies seem to have gotten the memo.

There may be rough times ahead for the real estate market, but experts say that office space is still needed, while acknowledging that employers may opt for smaller spaces with different amenities.
 
Rough quarter. Office space vacancy reached 12.4% in Q3, up slightly from 12.3% in Q2, giving it “the highest vacancy rate across all sectors of the commercial real estate market,” according to the National Association of Realtors.
 
There was a record amount of office sublease space available nationwide in July, indicating that businesses may have been trying to offload much of their real estate, according to a study from CoStar reported by the Wall Street Journal. In fact, Meta, Lyft, and Salesforce have all cut back on “millions of square feet of office space,” according to reports.
 
According to a paper from NYU Stern School of Business and Columbia University, office space occupancy in major US markets has experienced something of a rebound, hitting 47% in September, up from a pandemic-era low of 10% in March 2020. But it’s still significantly lower than the 95% tracked in February 2020. And companies that do sign leases are now looking to sign shorter ones than they did pre-pandemic.

Don’t destroy the printers…yet. Colliers, a commercial real estate firm, signaled that office occupancy rates are expected to rise incrementally, with occupancy remaining higher in suburban areas than in dense CBDs.

While Colliers says it’s too soon to tell how hybrid work might affect the commercial real estate market, the study predicts there will be a greater demand for flexible workspaces. This can already be seen in the way some HR leaders say they’re looking at office spaces.
 
“We may be taking less square footage, we will be taking less overall floor space, but we’re now redesigning or rethinking what the workspace should look like, making it more collaborative,” Scott Dussault, CFO of human-capital management software firm Workhuman, recently told CFO Brew.
 
Social and environmental factors, such as an office space’s impact on the local community and its energy efficiency, are also top of mind, Kaitlin Kincaid, senior managing director of commercial real estate search and advisory firm Keller Augusta, told HR Brew. “People are certainly looking at the office differently than they ever did before.”

The bottom line: Whether your employees are hybrid or in the office full-time, plan your office plants accordingly.—KP