It’s difficult to imagine today, what with all those nearly empty office buildings in downtowns across the country, but at least one major commercial real estate firm is predicting a bright rest of the decade for the office sector.
Cushman & Wakefield, in its recently released third report on the future of the office sector after the COVID-19 pandemic, said that while it will take time for this sector to recover, and while the way people work will probably change, the rest of the decade should be a good one for office.
How good? Cushman & Wakefield cites the number 5 million. That’s how many office-using jobs the United States is forecast to create during this decade. For reference, that’s more than the 4.6 million office-using jobs the country created from 2010 through 2020.
Again, it might be difficult to envision that right now. Many office employees are still working from home as the rollout of the COVID-19 vaccines continues and the country waits for a return to normal pre-pandemic life. Office buildings in the largest Midwest cities sit largely empty as companies wait to bring their workers back to the office.
And there’s plenty of uncertainty for what office life will look like after the pandemic ends. How many companies will continue to allow their employees to work from home? How many will adopt a more flexible working arrangement, where employees work from home when it makes sense and from a centralized office when they need to focus on collaborations, meetings and group projects?
These are all topics that office pros across the country tackled in the 19th Annual Commercial Real Estate Forecast Conference held back in January by REjournals, too.
Cushman & Wakefield in its report said that only a small number of businesses say they are planning to move to a 100 percent remote-working model. Cushman cites a study by PwC showing that 87 percent of executives believe that the office remains a critical place for collaborating and building relationships. The remaining 13 percent of executives surveyed by PwC said that they are considering a more virtual remote-working model.
The consensus? Cushman predicts that while some companies will return to 100 percent in-office and some will experiment with 100 percent virtual, these businesses will be the outliers. The most likely pick for the future of the office is a hybrid model, a mix of remote working and in-person working, Cushman & Wakefield predicts.
For now, though, most companies remain firmly in a wait-and-see mode. Cushman & Wakefield said that nearly one-third of all office lease renewals in 2020 were for one year or less. That’s three times as high as in a typical year. This is evidence that many companies are waiting to make longer-term leasing decisions until they have more clarity on when the COVID-19 pandemic will finally end.
And in other trends? Cushman said not to buy into the rumors that businesses are fleeing the central business districts of big cities for the suburbs. Most companies are staying put for now, according to Cushman’s report.
There’s no debating that the pandemic has inflicted significant damage to the U.S. office market. In 2020, this sector experienced 104 million square feet of negative absorption across the country. This is more severe than what this sector experienced during the entirety of the 2007-2008 financial crisis. The U.S. office vacancy rate rose from 12.9 percent pre-pandemic to 15.5 percent by the end of 2020.
Again, though, there is hope. Cushman & Wakefield pointed to the recovery seen in office markets in parts of the world where the virus has been more contained. In the Asia Pacific region, for example, office space absorption turned positive in the second half of 2020 and office sales volume increased by 9 percent in the fourth quarter compared to a year earlier.