Pandemic office trends holdNovember 13, 2023
Pandemic office trends hold, creating a bifurcated market
More than three years since the start of the pandemic, the real estate industry professionals largely have accepted that the sector will not be returning to the way it was before, as work and commuting behavior patterns have been tough to change — even with corporate demands and incentives to return to the office. Office buildings have also lost their appeal to investors, with sales transactions down more than twice as much as the other major property types.
There’s currently a bifurcated market in the office sector of haves and have nots, with a few properties in big cities that remain attractive to corporate America. Those properties are typically the newest, safest, healthiest buildings with the top amenities in the most-sought-after locations. Such premier facilities are attracting a disproportionate share of leasing interest. Moreover, office markets in many smaller, growing cities are not only surviving, but thriving even beyond pre-pandemic levels.
In the years ahead, companies with business models that support remote work will keep reducing their office footprint to save on rent. Going fully remote also may help companies win in the battle for talent, as companies that offer remote positions have access to a wider talent pool, which allows them to recruit better workers at more affordable wages. Such economics may be too compelling for them to reverse course and lease office space like before.
So what should office owners and cities do with the empty properties? While some in the industry have been calling for the repurposing of high-vacancy office buildings, the industry leaders caution that not all office buildings can be economically converted — even with government subsidies. A better economic solution, they suggest, may be demolishing buildings and repurposing the land.
Despite the bleak forecasts, some industry leaders haven’t given up on the future of office buildings. They want to learn from how the retail sector adapted and ultimately rebounded from the competition it faced over the past few decades from e-commerce, which emerged as a viable alternative to in-store shopping.