Office buildings were one of the hardest hit sectors of the commercial real estate industry during the pandemic — as the world suddenly shut down and discovered how to work from home, the office became obsolete.
Or did it? Real estate services company JLL reported a boost in office investment, with $81 billion invested globally in offices in Q1 of 2022, the highest level since 2007. Encouraging signs show that investor and employer interest in office properties is once again on the rise, even as companies grapple with their return-to-work plans as the pandemic continues.
We’ll take a look at what’s driving this demand in office space across the country.
A Relative Return to Normalcy
Welcome signs of (office) life in the nation’s largest cities: Since the March 2020 Covid shutdown, New York City’s recovery reached a milestone for the first time, as office occupancy topped 40 percent in June 2022, according to Kastle Back to Work Barometer data. Chicago and Los Angeles report similar occupancy rates.
Across the U.S., office occupancy hit 44 percent this month, a record high since the start of the pandemic. Cities in Texas, including Austin, Houston, and Dallas boast the highest office occupancy in the country.
However, how does the rise of remote and hybrid work affect these revitalization efforts?
Despite widespread reports of remote work continuing indefinitely, the reality seems more mixed. A recent survey by CBRE revealed that 36 percent of employers already had a return-to-work strategy underway, with another 25 percent reporting they would have a plan in place by the end of June.
Those policies seem to include hybrid work, with 70% of employers saying they intend to allow workers to be both in the office and remote. But even with new hybrid working arrangements in place, companies' sentiment toward expanding their office footprints has grown year-over-year.
Respondents to the CBRE survey say that business growth is the primary reason for their expansion plans (76 percent). With office-focused jobs reaching their pre-pandemic levels and expected growth of 6 percent over the next two years, this expansionary sentiment tracks with the trends.
Embracing a New Approach
Despite this optimistic outlook, office buildings are undergoing a historic reinvention during the global recovery. With this evolution comes disruption — traditional office-heavy districts such as Midtown Manhattan, Chicago’s Loop, and Downtown LA continue to struggle to fill office space, while less cramped cities and areas are experiencing an influx. Think: state-of-the-art office towers in desirable neighborhoods and sprawling campuses with amenities galore and plenty of outdoor space.
Amidst the Great Resignation, companies now consider their office space as a competitive advantage for attracting and retaining talent. Where an organization conducts business is a major component of company culture, and creating a safe, enjoyable atmosphere is an important factor in bringing people back to the office.
These shifts are opening up opportunities for office property owners and managers to appeal to investors and tenants with amped-up amenities and flexible leases. In this era of recovery and resurgence, now might be the time to rethink your interest and investment in office properties to be at the forefront of the future of the workplace.
Investing with Insight
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