How we return to the office and utilize workspace going forward will define the next era of commercial real estate. Despite recent headlines highlighting companies establishing a fully remote workforce, we only need to look back to the creative office boom ten years ago when companies were remodeling their space after Big Tech. Stripped out ceilings, torn down walls, and pulled up carpet were just a few of the ways companies tried to open up their space and attract talent. The tremendous effort didn’t consistently reap rewards, though, and soon organizations realized not every employee was able to be productive
in a wide open space. Eventually companies re-examined the workplace more closely to arrive at the appropriate mix of open and private space in order to maximize productivity and employee engagement. The narrative provides us a very important lesson: that one size does not necessarily fit all.
Fast forward to today and that same lesson can be applied. The 68.7% rise in recently available space since April doesn’t necessarily tell the whole story of what’s happening in commercial real estate. Today’s office market is dynamic and rapidly evolving. It is a result of many factors, including recent pandemic-related layoffs and insolvencies, as well as companies experimenting with their workplace strategy.
Some companies may find that they need even more space during
this pandemic. A company might opt to lease another office, in addition to a primary office, in a secondary region more convenient for some employees. Or, companies might need to expand to a second location to accommodate appropriate social distancing despite a reduction in daily capacity.
In West LA, new space listings spiked in February but dropped sharply in March aligning with the timing of the county’s shelter-in-place orders. More recently, additional vacancies came to market increasing available space by 9.5% from May to June. New space added this year totals 2.9 million square feet - a fraction of the 8.3 msf of space added in San Francisco. Unlike San Francisco, however, where a few main industry verticals (software, autonomous vehicles, etc.) that drive the local economy have created a large influx of sublease space, LA’s strength lies in its diverse tenant base, which makes it more resilient to market volatility.
One overarching path is emerging from the data: companies are adapting to the hybrid workplace, with flexibility and productivity paramount. The workplace will not likely look homogeneous moving forward, but instead be heavily nuanced and shaped by a building’s occupant. The hybrid workplace prioritizes employee choice; as such, the makeup of every company’s workforce and physical footprint will likely depend on an employee's unique needs and values. There is no hard and fast rule to the new future of work, but those who are seizing the opportunity to listen to employees will have a clearer return to work strategy than those who don’t.
Report brought to you by:
Petra Durnin - Head of Market Analytics
Cami Baer - Data Manager
JP Legrottaglie - Market Analyst