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2022 U.S Office Market: Expert Outlooks

| Commercial Real Estate News, Leasing, Office, Q&A| Views: 0

We’ve witnessed some major changes in the last couple of years due to the COVID-19 pandemic — and the office market is no different. So, as people slowly return to the office, CommercialCafe asked commercial real estate brokers and industry experts to share their thoughts on the state of the market in 2022.

Specifically, we asked them about the biggest challenge the market would face and how it has changed in the last two years; what innovations would enable a safer and more comfortable office experience going forward; whether they had noticed any changes in preferred lease terms; their thoughts on hybrid work and more. Read on to find out what they had to say.

Meet our Experts

Shaun Connell

Real Estate Investor & Founder of Texas Asset Protection

Brian Higgins

Commercial Real Estate Agent at G2 Philly (Berkshire Hathaway Home Services Fox & Roach)

Ryan Swehla

Co-CEO and Co-Founder at Graceada Partners

What is the #1 challenge the office market will face in 2022?

Shaun Connell

Work-from-home culture. Although we are seeing an increase in the number of people coming back to [the] office, I doubt the number will ever be the same as previous years.

Brian Higgins

The biggest challenge the office market faces in 2022 is returning to pre-COVID vacancy rates. There is less demand for office space right now, hindering full occupancy. Also, with companies adopting more hybrid work models, they don’t need as much space as they were occupying pre-COVID.

Ryan Swehla

The well-established hybrid approach will become a challenge for office space, especially in primary markets like New York City and San Francisco. Secondary markets — cities like Sacramento and Charlotte — will still see many workers continuing to adopt the work-from-home model. However, office space will become relatively more coveted in booming secondary markets.

How have the previous two years transformed the office market?

Shaun Connell

People found out that, for most jobs, they don’t need to go to their office. Yet, they can be equally productive and work from the comfort of their home. So, the past two years have made them less compelled to go back to office — hence, the fall in the office space property industry.

Brian Higgins

Flexible work schedules have proven to be beneficial for both employee and employer. Studies have shown employees are more productive with flexible schedules, therefore helping the company’s bottom line.

Ryan Swehla

It has shown the value of in-person work, especially in these outpost economies — a term for secondary and tertiary markets that have a higher quality of life that attracts workers who are untethered from a physical place of work and away from employment bases in major cities. This phenomenon leads to a more dispersed economy, a decentralized workforce and [is] a key component strengthening the gig economy. Due to the shift in workers’ settings — both geographically and spatially in terms of office versus from home — it has, in a sense, created a digitized outpost economy.

How widespread is the adoption of hybrid work models among tenants and how long-term is this trend?

Shaun Connell

The adoption of hybrid workspace is now a day-to-day affair in most workplaces. Most tenants have already adopted the hybrid work model. However, the trend might see a dip in the near future.

Brian Higgins

I think most companies have accepted hybrid work models, and it doesn’t look like it’s going to change any time soon.

Ryan Swehla

I’d anticipate 20% to 30% of white-collar professions to shift long-term to a hybrid model alternating days in and out of an office for most employees. Google’s CEO, Sundar Pichai, even said that the 3-2 hybrid model (where employees come into the office three times a week, and work from home two times a week) has really taken hold.

Are commercial tenants considering/planning for a long-term reduction in office density?

Shaun Connell

Absolutely! There is a huge spike in their interest in reducing office density. Most of the tenants (if not all of them) have already done it or are looking forward to doing the same.

Brian Higgins

Reductions in office density were trending long before the pandemic came along. Companies had begun to reduce their footprint due to green initiatives. This trend will continue and will probably lead to tenants seeking a more modern space.

Ryan Swehla

It really depends on the industry and company size. We tend to see smaller companies [that are] more used to working together continuing to hold onto their office space. Hybrid work models don’t really impact office size space for many of the companies making some shifts, as they’re planning to have everyone in an office at the same time at least several days a week. When it comes to long-term reductions in office density, it is remote work that will really impact that. The more full-time remote employees at a company, the likelier the chance they reduce their office footprint in the long run.

Have there been any notable changes in preferred lease terms, either for tenants or landlords?

Shaun Connell

We have seen a trend that is quite notable in the lease terms, especially in the duration of the lease. Before, we used to see a lot of long-term leases. However, in 2022, we are seeing leases for as low as three months for office space.

Brian Higgins

The most notable change I have seen is the desire for better designs of workspace. Tenants in a post-COVID world need to rethink the design of the space they occupy. Landlords have to be willing to work with prospective tenants on these new demands.

Ryan Swehla

It really depends on the company’s industry, size and specific situation. The early part of the pandemic provided tenants some leverage with changing lease terms (whether committing to smaller lease terms or signing larger agreements with more favorable terms due to the uncertainty in the market). This will be an interesting year that, I think, will offer additional answers to the future of office work, both at a macro level, but also in local markets, where they may be experiencing higher-than-usual vacancy rates.

What innovations will enable a safer, more streamlined and more comfortable office experience going forward?

Ryan Swehla

Safety has been a key component of the return to work, and some companies and landlords invested not only in safety measures (like masks and hand sanitizer), but also shifted the overall layout of offices to allow more space.

While the distance between workers may have initially been a safety measure, it may also offer a more comfortable experience moving forward. One of the shifts for some offices (particularly for companies embracing a hybrid model) is that the office becomes a welcomed oasis from home and a place workers want to congregate to share ideas, brainstorm and collaborate on a consistent basis — just not every business day.

Are any office space types and amenities seeing increased attention as a result of current conditions?

Shaun Connell

Office spaces as a service have seen an increase due to the current conditions. Many companies are switching to ready-made office spaces offered as a service. Also, amenities like good connectivity are in high demand right now due to the hybrid workplace model.

Brian Higgins

More modern or more newly constructed buildings are more desirable for tenants. This has been driven by the need to refigure working space post-COVID.

Ryan Swehla

There are some secondary and tertiary markets with a growing population that are witnessing a strong environment for office spaces and leases. It really depends on the demand of the local market. Industrial space has been booming in some markets as we continue to see a boom in demand for e-commerce and shipping.

Are there any other insights that you’d like to share?

Shaun Connell

In my opinion, commercial office space might never get back to the point it was a few years ago. Some people even call it less productive, too!

Brian Higgins

One thing that I believe is being overlooked is the effect the increase in vacancies will have on the values of the properties. I would imagine there will be many appeals to property assessments in Philadelphia, which could lead to tax shortages. The larger question is what long-term effect will this have on the residential market in the downtown area.

Ryan Swehla

You’ll find some further information in the industry report we just released. It gives five predictions for how the Outpost Economy is changing America. You may glean more insights from it!

If you found this article useful and informative, please feel free to check out our Expert Insights & Roundup Series.

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