Our workplace solutions team recently sat down with WTOP to share how they provide strategic guidance to commercial real estate clients on transitioning to a more flexible and resilient workplace.
Since the early days of the pandemic, much has been written about workplace flexibility – and the impact of remote and hybrid work on commercial real estate.
Business leaders have spent much of the past two years running their companies from their kitchen tables, while their employees worked from home or other remote locations. Employee productivity improved, while “Zoom fatigue” settled in and employers discovered new, virtual ways to connect with team members and customers.
As a result, many of the commercial real estate (CRE) tenants we see now are embracing a hybrid or remote work model, which ultimately means fewer days in the office for employees. Top of mind for these tenants is whether to reduce their office space, sublease excess space, or even close their offices entirely.
To be sure, there is no single, “right” answer.
When clients ask, we typically advise starting with an assessment of what they are hoping to accomplish by bringing their employees back and how they intend to use their office space. From there, considerations like employee retention and recruitment, productivity, cost savings, operating efficiency and future expansion should be factored into the planning and decision-making process.
“Employee retention and recruitment, productivity, cost savings, operating efficiency and future expansion should be factored into the planning and decision-making process.”
While some of our clients have opted to delay their office re-openings due to the recent surge in Omicron COVID-19 cases, virtually all of them are planning more flexibility with less office space as they look to re-open in 2022 and beyond.
Even businesses that still prefer face time and in-office collaboration are moving ahead with re-opening plans that call for fewer employees in the office. Beyond the implementation of COVID-19 health and safety protocols like social distancing, face coverings, cleaning and disinfecting, these tenants are rethinking space utilization, space allocation, in-office amenities and cost per square foot. Open floor plans and coffee bars with draft beer are giving way to outdoor spaces, social areas, collaboration rooms and quiet spaces. Some CRE tenants are even considering moves or relocations to smaller footprints or re-negotiating lease agreements with an eye toward lower prices per square foot.
Employers that have implemented hybrid work models are seeing more significant declines in their peak occupancy rates, from 60% to below 40%. CRE tenants that were occupying multiple floors before the pandemic are now consolidating into one or fewer floors, to foster a sense of community and to provide more flexibility in accommodating the variable number of employees who come in to the office on any given day. They’re also saving or making money by subleasing their excess space, which allows them to remain until the expiry of their original lease.
Other employers are opting to close their offices entirely, and are transitioning to a permanent remote work model. CRE tenants who have opted to terminate or not renew their leases are doing so in response to the growing employee demand for permanent remote work arrangements, the high cost of office space in the D.C. area (e.g., an average of $60 per square foot), productivity gains from remote work, a wider talent pool from which to recruit from and the uncertainty surrounding potential new COVID-19 variants.
The workplace is evolving. Employees are spending fewer days in the office. Employers are moving toward more flexible workspaces, smaller footprints, greater cost efficiencies and more remote work. And, while the recent surge in Omicron cases has subsided, CRE tenants and their employees remain steadfast in their desire for a workplace of the future that is flexible and resilient.
From where we stand as an office moving and logistics service provider, the clearest path toward workplace flexibility and resilience leads straight through hybrid and remote work.