Office Space Trends
One way businesses are enticing their workers back to the office is by upgrading their space from Class B to Class A space.
Continuation of Office Space Trends
McKinsey & Company and the Wall Street Journal estimate that the US office sector has shed close to 25% of its value since 2019. Some of the drivers of the decline is attributed to the reshaping of how businesses operate, utilize space, and the advancement in remote work tools. Pundits argue the pandemic is not the cause for the decline in office occupancy levels, but rather the catalyst or the accelerant for the “Flex work” and “work remote” trend. In addition, the 20 year-high interest rates add another dimension of difficulty to refinance some of the buildings in decline.
Let us refocus on some of the creative office market trends Okay, now that we got the negative news out of the way, let us refocus on some of the creative office market trends, which tend to be more positive.
“Flight to quality” First, not all metropolitan areas have sustained a loss in office value-e.g., Certain Class A space has held up well. McKinsey cites “flight to quality,” which is that businesses are enticing their office workers back to the office by upgrading their space from Class B to Class A space. Studies indicate that better space and amenities raise productivity, which can justify the splurge in the increase in office space. Some of the enhancements include more open space, more biophilia, better indoor air quality, better audiovisual technology, and closer to mass transit.
“You can’t train people over Zoom, you can’t ensure their productivity over Zoom, and you certainly can’t build culture over Zoom… Another trend is revamping and repurposing older buildings to suit some of these office trends. In some examples, office buildings are being gutted to accommodate the burgeoning coworking and flex office industry. Cost estimates for these types of conversions range from $100 to $250 sq ft. “Work Simple” was spawned by some veteran developers (Koelbel & Hemmeter) who are acquiring buildings in the suburbs to convert them into coworking space. Work Simple is betting that office buildings in the right location and with modern amenities will continue to play an integral part in the business community. “You can’t train people over Zoom, you can’t ensure their productivity over Zoom, and you certainly can’t build culture over Zoom…. Office is not dead and it’s coming back,” Koelbel said. https://www.bizjournals.com/denver/news/2023/07/11/koelbel-mark-hemmeter-work-simple.html
Lots of creative real estate strategies are going into effect, which should continue to fuel our US economy for generations to come. At another extreme, developers are spending as much as $500 sq ft converting office buildings into residential real estate. In summary, albeit this is a difficult time for the office sector, lots of creative real estate strategies are going into effect, which should continue to fuel our US economy for generations to come.
Primary Sources:
https://www.mckinsey.com/mgi/our-research/empty-spaces-and-hybrid-places-chapter-2
https://www.bizjournals.com/denver/news/2023/07/11/koelbel-mark-hemmeter-work-simple.html
https://www.bizjournals.com/denver/news/2023/08/07/denver-q2-office-performance.html