Fewer people working in the office, less need for office space?
That seems like a logical conclusion to draw. But a recent survey of 446 U.S. businesses by the Harvard Business Review found that while days in the office are dropping by 30% or more as companies permanently shift to hybrid work, office space demands are only falling by 1.4%.
What’s going on? The HBR report points to three factors driving this trend.
- Office workers want more social distancing when they go into the office.
- Because many staffers prefer to stay home on Monday and Friday, that means a critical mass of people flood offices mid-week, meaning few opportunities to consolidate space.
- Offices are being redrawn and reimagined to accommodate office life in a pandemic and post-pandemic era, which means more space for amenities that employees are craving.
What the experts are saying: Employees don’t want to “hot desk” even though the executives may prefer the concept as a way to reduce office space footprints. And high-density is out. “I don’t think folks ever want to go back to high-density cubicle farms,” said Adam Chapman, a commercial real estate broker in Seattle with JLL. “We’re now using 200 rentable square feet per employee for tech companies — whereas 150 square feet or even less was the norm, pre-COVID.”
Seattle-area commercial real estate numbers*: Even still, office leases in 2021 fell over the previous year, and they were down 46.9% compared to pre-pandemic levels.
- Collectively, class A office space rents fell across the Puget Sound region to $46.77 per square foot in the fourth quarter. But class A rates rose in the high-tech hotbed of Bellevue’s downtown core to $59.16 per square foot, while they fell slightly in downtown Seattle to just over $50 per square foot.
Tech companies still on lockdown: As the Omicron variant surged over the past few months, many big tech companies with thousands of workers in the Seattle area delayed office returns. Some companies such as F5, Icertis, Remitly, and Zillow have already shifted to permanent hybrid work in an effort to provide maximum flexibility. Others pushed back return dates, while Seattle’s largest tech employer, Amazon, said in October that it would allow individual team leaders to make the call on where and when staffers work.
Even still, tech is driving the Seattle office market: Tech companies, with their insatiable appetite for new workers, are propelling the Puget Sound region’s office market. Meta, Amazon, Microsoft and a bevy of new life sciences companies continue to gobble up space. Tech companies represented 76% of the major lease transactions in the fourth quarter of 2021, according to Savills. And JLL found that tech companies accounted for 51% of all lease deals in the quarter.
- “As tenants across industries have remained largely on hold until the pandemic begins to subside, the tech industry has continued to double down on its future in Puget Sound offices with several large leases signed in 2021,” JLL’s fourth quarter real estate report notes.
Is the Seattle market weird? Along with Portland and San Francisco, Seattle is operating in a bit of a bubble. “We seem to be very much in (our) own worlds: Tech-heavy, very COVID cautious, very remote first,” says JLL’s Chapman. “We are hearing from our other offices that folks are back to office in much higher numbers.”
*Data collected via JLL and Savills.
