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. A significant increase in recently available space brings the total added in 2020 to 8.3 million square feet, from large users such as Uber, Airbnb, and Credit Karma. Conversely, companies like Twitter that announced fully remote work options have not given back any space. New space from May to June accounted for 39% of all the space added in 2020, but it 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.
Even before the pandemic, sublease space was on the rise in San Francisco. The primary driver of that increase was companies relocating from space they’d outgrown to more spacious offices. Though the coronavirus and its effects on the workforce have only exacerbated the availability of subleases on the market, this fact also presents interesting opportunities to those who were previously priced out of the market. It's also an opportunity for companies already in the market to take advantage of potentially more favorable lease terms or lease re-negotiations.
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 occupants. 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