As COVID-19 cases continue to drop, the pandemic’s impact on the office sector appears to be gradually stabilizing. To find out to what extent, the Building Owners and Managers Association (BOMA) International teamed up with Yardi and Brighline Strategies to gather insights from more than 1,200 commercial office space tenants across 20 major U.S. markets.
The third and final phase of the BOMA International COVID-19 Commercial Real Estate Impact Study shines a light on how COVID-19 has affected attitudes toward the traditional, physical workplace and how decision-makers plan to move forward. Below are some of the key findings:
A Physical Office Space Remains Vital
Despite massive changes brought about by the pandemic, a striking 86% of respondents believe that physical office space is, and will continue to be, vital to running their business successfully. This represents an 8% increase from the 2021 version of the study. And while the future of the traditional office is still in flux, there are plenty of key drivers for tenants to hold onto a physical space.
Among the main reasons for having a physical office space, 78% of respondents agreed that it was an essential place for interacting with clients and customers. Meanwhile, 73% agreed that having a ‘home base’ to promote a community spirit and a sense of belonging among employees was important.
Most Respondents Would Renew Their Lease
With the vast majority of respondents seeing a physical office as crucial for their business, it’s perhaps no surprise that 72% indicated that they would renew their lease if it expired today. This shows a considerable increase from 38% in the previous study and a return to the pre-pandemic baseline.
There seems to be far greater clarity compared to 2021, even among those unsure whether they would renew their lease. At 30%, the top reason for uncertainty in this year’s survey was tenants’ intent to shop around for a better deal.
However, there are changes afoot when it comes to leasing office space. Of those interested to renew, 54% stated they would prefer a shorter lease term. In general, tenants now seem to prefer a lease term of three to five years rather than the more familiar seven to ten years.
Return to Offices Highly Supported by Employees and Employers
In terms of moving forward, employer and employee desire to return to a physical office is much more aligned compared to previous years. In total, 76% of respondents said their employees and colleagues support a return to the office. This compares to just 54% in 2021. Meanwhile, 78% of survey participants agreed that they personally also encouraged such a return.
Support for Hybrid Work Models Increases
While returning to the office is undoubtedly supported, that doesn’t necessarily mean that employees want to spend 100% of their working week there. Hybrid models have remained fairly accepted from year to year. On average, decision-makers predict that 29% of employees (compared to 26% in 2021) will work either fully remote or on a hybrid schedule within the next 12 to 18 months.
With that in mind, around two-thirds would rather limit hybrid work and see workers in the office at least three or four days a week. Interestingly, this percentage aligns almost precisely with employee preferences.
Tenants Show More Certainty Regarding Space Needs
Tenants are showing more clarity regarding the amount of office space they require. The percentage of those unsure whether they would adjust their square footage has fallen from 26% in 2021 to just 4%.
Meanwhile, 70% said they would reassess their needs. Of those, 61% are looking to downsize, which equates to 51% of the total sample. This shows an increase from 37% in the 2021 study. Meanwhile, 36%, or three in ten, are looking to expand their footprint.
Tenants with the largest physical footprints are among those most likely to reassess, as well as those paying the highest rents. In short, with so many businesses looking to downsize, commercial real estate developers may need to reimagine how they utilize larger office spaces in the near future.
Tenants More Demanding in Terms of Office Amenities
It’s not just the size of the office that matters either. With 78% of tenants seeking property owner investments beyond the norm in terms of health and wellness amenities, there’s a clear desire to create a new normal. And it seems that organizations and tenants alike are changing their behaviors in an effort to entice more people to return to the office. Things such as commute stipends, professional development events and creating more welcoming and healthier workplaces are all widely being implemented.
For an overview of the commercial real estate market in popular areas across the U.S., visit the links below:
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