The Impact of Remote Working on Office Leasing
With most office workers able to work from home, the pandemic hasn’t hit office tenants—and thus their landlords—as hard as it’s hit tenants in the retail, restaurant, and hospitality sectors. But with employees productive at home, office tenants are reconsidering their need for office space.
So far during the pandemic, companies are not in a hurry to bring large numbers of employees back to the office, Rebecca Rockey, Global Head of Economic Analysis & Forecasting at Cushman & Wakefield, told attendees at last month’s annual conference of the National Association of Real Estate Editors.
Lease renewal trends during the pandemic show a “wait-and-see” approach. While the share of office tenants renewing their leases recently rose from a historical average of a little over 60 percent to a little over 80 percent, a historically greater percentage of renewals were for one year or less, according to Cushman & Wakefield researchers. Their recent study found that 34.5 percent of renewing office tenants downsized, reducing their leased space; 41.9 percent upsized; and 23.6 percent renewed with no change in the size of their leased space.
Beyond the pandemic, how might demand for office space change? Researchers asked office tenants the following question both pre-COVID and post-COVID:
Which most closely matches your company’s approach to work:
Office-First 50% 10%
Office-First Hybrid 22% 58%
Remote-First Hybrid 7% 23%
Remote-First 12% 10%
Source: Cushman & Wakefield Research, CoreNet Global/Cushman & Wakefield Research
In sum, companies’ hybrid expectations rose from 29 percent to 81 percent over the past year. According to Rockey, work-from-home is likely to be “partial” post-pandemic, with a new hybrid system effective within a certain radius around cities. She cautions that companies are experiencing remote working differently, with important implications for companies that are seeing the drawbacks to long-term work-from-home for a majority of their employees. Especially in gateway cities, after borders reopen, office occupancy is likely to bounce back, she predicts.