New Survey By CoreNet Global Reveals That Mandates of Three Days in the Office is Most Common, Though Not All Employees are Compliant

ATLANTA, July 24, 2023 /PRNewswire/ — More than a third of companies polled by CoreNet Global, the premier association for corporate real estate professionals, say that employees are required to be in the office three days a week, but more than 50 percent also say that there is a gap between the number of days employees are required to be in the office and the number of days they are actually there.

How many days workers are required to be in the office:

• 0 – 25.3 percent
• 1 – 2.8 percent
• 2 – 10.3 percent
• 3 – 36.7 percent
• 4 – 12 percent
• 5 – 12.6 percent

Is there a gap between the mandated number of days and the actual number that workers are coming in?

• Yes – 55.5 percent
• No – 44.5 percent

“We are indeed seeing companies that wish to implement post-pandemic, return to office mandates, but employees are pushing back. We will be watching to see how this dynamic plays itself out over the next year,” said Tim Venable, Senior Vice President, Research and Content Development at CoreNet Global.

Overall companies are still committed to having a corporate headquarters with more than 90 percent saying that they have not abandoned the headquarters in favor of remote work. Nearly half have redesigned the headquarters with features that include fewer individual workstations, air filtration, modifications to snack areas, touchless devices, and desk hoteling/unassigned spaces.

Many companies are using less space. More than half, 55.4 percent say that their corporate real estate footprint is smaller than it was two years ago. (18.5 percent by less than 10 percent, 17.9 percent by 10-20 percent; and 19 percent by more than 20 percent.

Thirty-one percent say that the portfolio has not changed compared to two years ago.

In terms of their view of the economy over the next six months, 41.2 percent believe that it is declining and 26 percent say that it is improving. Only 25 percent plan to institute layoffs over the next year.

The survey was conducted in July 2023; there were 174 responses globally.

PR Newswire Article Link

About CoreNet Global
CoreNet Global is a non-profit association, headquartered in Atlanta, Georgia (US), representing nearly 10,000 executives in 50 countries with strategic responsibility for the real estate assets of large corporations. The organization’s mission is to advance the practice of corporate real estate through professional development opportunities, publications, research, conferences, designations and networking in 45 local chapters and networking groups globally. For more information, please visit www.corenetglobal.org and follow CoreNet Global on LinkedIn.

There were five key takeaways in this report.

• The Tuesday to Thursday on-site work week is showing longevity.
• Workplace visitation patterns vary widely across cities and professional sectors.
• Ease of access is key.
• One-person households account for a disproportionate share of employee visits – while parents seem to be staying home.
• Bring on the craft beer.

In addition to the report, I’m seeing more and more people headed back to the office, in fact, I have heard that some renters are moving to get back closer to their offices because their employers are demanding that they return to the office. Currently, the visits to office buildings is around 60% of what it was pre-Covid and I think that we will see this increase as we get closer to the end of the year. I look forward to seeing if this actually happens.

To read the entire report, click below.

The article points to three areas that bring challenges to CEOs and their real estate footprints. The three areas are quality data for their footprint, sustainability mandates, and the mixed economic outlook. The article looks at these three areas and how they impact corporate real estate. The article also noted that corporations are likely to take action as they see their long-term real estate strategies come into focus over the upcoming calendar year.

Hybrid work is impacting workstyles.

It seems that the pandemic created a perfect storm for the employee. Prior to 2020, good employees were in demand and they held quite a bit of negotiating power. When the pandemic hit, it forced people to work from home. Once this was an acceptable practice across the board, employees had a little more leverage on working from home. The root of this may be tied to the employee’s desire to improve both physical and mental health. The perfect storm resulted when employees started to demand that they want to see an allotment of both in their workplace. The net result for leaders is that they will need to “provide flexibility in how, when and where employees work, and provide the guardrails for them to find time throughout the day for well-being – as defined by the individual, not the employer.“

“There has been a renewed focus on both physical and mental health, and individuals feel empowered to set boundaries with and manage expectations of their employers in ways they hadn’t before. “

Highfield, Gordon, Mulrooney

As we see new trends, we can only expect that new policies will also be needed to sustain this change. According to the article, “transparent decision making and clear working guidelines have become a major focus for employees as they operate away from the office.” In order to win in the workplace, leaders will need to come up with strategies and implement them so employees stay satisfied and productive. In addition, organizations want to unlock value from their investments in the workplace (i.e. office space) but employees must be present for this investment to be realized. Therefore, working out a strategy for transparent decision making and polices along with your workplace investments will be at the core of the problem to solve within corporate real estate over the upcoming year.

Evolving workstyles are impacting the role of the workplace

How do you make the best decision giving the change? You will need good data to make those decisions. One such area is getting real time utilization of your office space. In other words, what is your organizations demand look like for office space (when, who, what, and where)?

“Having access to quality utilization data is especially important when evaluating different locations within the same city or region for footprint consolidation initiatives given that where people work from is less predictable when provided with optionality. For example, is a once-sleepy satellite office now more bustling than the city center HQ, given the proximity to talent?”

Highfield, Gordon, Mulrooney

Companies still recognize that the workplace still plays a role in creating connections and fostering collaboration. “Deloitte’s 2023 Commercial Real Estate Outlook reports that 41% of real estate CFOs in North America expect that their company will perform a workplace redesign in the next 12-18 months, and we can expect a great deal of that investment will be targeted at reducing the amount of individual workstations and providing more places for people to come together for learning and culture building.” The article also pointed out that there will also be an investment in how to improve the digital experience.

Informing location strategy from workplace realities

As a broker, we are seeing the lack of demand for new office space. Listing brokers are a lot more willing to show up for a tour and roll out the red carpet if they have a tour in one of their vacant spaces. Meanwhile, corporations are in the process of deciding how much space they need from their pre-Covid portfolio. The change may take a few years to shake out but it will happen. As leases burn off, it is very important to develop your strategy now so you can start implementing it immediately.

There are at least three strategies/trends that are forming in the marketplace. One strategy is to make revisions to seating by adopting co-working spaces. A second strategy is to increase the proportion of collaboration space and reduce the individual spaces. Another important strategy is looking at the talent pools and moving the office space toward the talent. This last trend is pushing corporations to look outside the big city and into the suburbs where the talent is living. As you work on these strategies, it will be important that you set up good data collection methods to collect the best data you can so you are able to make the most informed decisions.

The challenges and opportunities ahead

There are several challenges to coming up with good solutions to these new trends. One challenge is to develop the right questions to ask. What does your workforce need to be satisfied, productive, and successful? Does location have an impact on meeting those needs? Another aspect is to look at the quantity verses quality when asking these questions. In other words, ask questions that take into account employee needs along with corporate real estate needs. Also, if you focus solely on reducing your footprint, you may be missing the insight on how to increase productivity or satisfaction within your workforce. Another pitfall can be to avoid just looking at what your competitors are doing, take the data that you are getting from your workforce and use it to make good decisions for your company. The last thing to consider is how to look at these challenges. My recommendation is to look at these challenges as opportunities to improve your company and your competitive advantage.

Setting new trends, by creating.

The new normal is no longer new! We are seeing how employees are returning to the workplace and it is time to start collecting data and developing your strategy. This year will likely result in the beginning of a workplace that changes the experience that an employee have along with balancing the needs of the employer which should result in a re-balancing of your real estate footprint along the way.

Don’t forget that I’m available to come in and help you with your real estate strategy. Feel free to call me at 510-915-7645.

Office demand in the United States ended the year with its largest quarterly deficit since Covid vaccines became available in early 2021. Hybrid work schedules have become the norm and companies are shedding space in anticipation of slowing growth and possible recession. Negative net absorption totaled 13.6 million SF in Q4, bringing the total for the year to negative 18.6 million SF. In the nearly three years since the lockdown, the slide has totaled 131.7 million SF, representing 1.6% of inventory and more than three average years of growth. Nearly 60 million SF of new supply is slated for delivery at the end of the first quarter.

Electronically monitored U.S. and Canadian workplaces show that employee traffic remains down as much as half overall compared to January 2020. That’s where the broad similarities end. The vacancy rate at the end of 2022 is 12.7% in the U.S. and 8.7% in Canada, where demand has been positive over the last four quarters. The size of the U.S. Q4 contraction was unexpected. There had been more than 25 million SF of net absorption over the previous five quarters, for example, and gross leasing volume exceeded 100 million SF in each quarter this year but with increased requirements for smaller spaces.

Going into 2023, new headwinds are emerging, including widening fears of recession as the Federal Reserve remains resolved to curb high inflation with high interest rates that have slowed the economy. The anticipation of slowing has more companies making job cuts. The effects of steep layoffs in the once space-hungry technology sector hit West Coast markets hardest. metros posting the most negative net absorption in 2022 were San Francisco at 5.3 million SF, Los Angeles’ 3.7 million SF and 2.6 million SF in San Jose. Sublease space hit a record 230 million SF and is up more than 16% since Q4 2021.

Nationwide, transaction volume has fallen and the $231 per SF average sale price of all office properties last year was down 14.2% from 2021 and off16.5% from the average of the prior five years. Landlords aiming to cut costs also have been zeroing in on property taxes, the single largest expense. Owner appeals of tax assessments are up as much as 40%. Reduced property tax revenues cause cities and school districts to reduce services and could have implications for the $4 trillion U.S. municipal bond market.

Continued tenant cutbacks will make it more challenging for building Owners to service their mortgages. And with about 1.2 trillion in debt backed by office properties, widening distress could send tremors through the financial system.

Despite this gloomy backdrop there was growth in some markets. Chicago and Boston led top metros with the most 2022 growth with 2.6 million SF and 2.5 million SF respectively. And demand has held up well in some market segments. Among the newest properties – those complete since 2010 – tenant growth has been positive throughout the pandemic. Since Q1 2020 these properties have averaged 20 million SF of quarterly net absorption.

CentralReach’s office is “focused on space for in-person meetings and collaboration” and it’s designed to work with the “remote-first” hybrid approach.

CentralReach’s office space is said to be focused on “space for in-person meetings and collaboration when needed.” CentralReach has almost 400 workers that operate on a remote basis and they have been growing at an impressive rate over the past few years. Since 2018, CentralReach has grown their revenue by 700% and the plan is to grow to 500 employees by year end which is 400 employees increase over the past three years.

The goal was to create a space that worked in conjunction with the company’s “remote-first” hybrid approach. According to the CEO Chris Sullens, “We’re proud of our sustained growth over the years, we also came to recognize the importance of a physical space that could facilitate collaboration between all our employees, regardless of where they are working. We immediately recognized that Bell works was the right setting to turn that vision to reality, and we are incredibly excited to begin a new era of expansion at the metroburb.”

The new offices will include an open and configurable floor plan, with roughly half of the space dedicated to collaborative work. Meeting rooms and other areas of the office will have televisions and other equipment to allow seamless communication between employees present in the office and those working remotely. On the aesthetics side, the offices also feature colorful layouts, using plants and other sustainable materials.

If CentralReach has plans to grow their employee base to 500 by the end of the year, how many employees can come to the offices to work at any given day?

I looked up CentralReach’s website to see where their offices are located. They have four locations listed (Florida, New Jersey, Italy, and Ireland) but they don’t indicate the size of each office. If I assume that the Florida, Italy, and Ireland offices are just field offices and that they are 2,000 sf or less per location so with that assumption, the company would occupy a total of 31,000 sf. If CentralReach has 31,000 sf of office space that they lease world wide, how many employees can they have in their offices each day? In order to figure that out, we need to talk about the density in their offices.

Once we’ve estimated their office footprint, we can now look at density. Using traditional office parking, most office buildings are designed to have an occupancy load of 4 employees per 1,000 sf of space (or 250 sf per person). Using those densities the company would have about 124 employees working in their offices if they stick with a typical (250sf/person) parking ratio for a suburban office building. However, over recent years, I’ve seen employee density increase from 225-250 sf per person to 185 sf per person. So, if we move the density up a bit and use the density of 185 sf per person, then you could increase the occupancy load from 124 employees to 167 employees.

If this is the model of the office of the future, only lease enough space for 1/3 of your workforce then we may see office market impacted in a major way.

To put this into perspective, CentralReach is only leasing enough space for approximately 167 employees which is only about 1/3 of their work force. In other words, 2/3 of their workforce is working from home. It’s hard to know if this is actually the office of the future as it raises more questions like a model like this be enough for companies to be able to keep their culture among employees, will productivity go up or down with 2/3 of your workforce working from home, if companies only lease enough space for 1/3 of their employees, what can we expect to see for the office markets of the future?

What do you think of this model? Do you prefer to work from home or at the office? What do you think will happen in the future office market? Leave a comment below.

The Industrial Sector, Industrial REITS, and Data Centers will continue to grow in 2022.

The pandemic has actually helped all of e-commerce and as a result, it has really lifted the industrial and logistics real estate sector. Currently, e-commerce sales will make up 14.5% of total retail sales and it is expected to grow to 18.1% by 2024. In addition, all the technology that has become prevalent over the past couple years, like video conferencing, has increased the demand for data centers, cell towers, and logistics facilities.

The office sector is not dead. It will remain the hub of business, but hybrid schedules that allow for flexible work-from-home opportunities are here to stay.

According to the Labor Department, millions of employees are returning to work every month but employers are embracing a flexible work-from-home schedule. Most employees have embraced their work-from-home schedule and they are starting to require it from their employers. To gauge the effect of this trend and how it will impact the amount of space that companies take, watch for the peak space needs when employees are required to be in the office. We are still watching to see how and if employers redesign their offices to account for this trend.

Expect another strong year for the multifamily and housing sector.

We expect rents and home prices to remain high this year as demand for both multifamily and housing is strong. The pandemic has had a positive impact on this sector.

Demographic shifts will accelerate the demand for senior living facilities and elder care services.

Covid had a negative impact on this sector but we have seeing it coming back, especially the second half of 2021. A full recovery is likely going to happen in 2023 but expect to see 2022 continue the trend from last year.

Expect another banner year for the self-storage sector.

With home sales high throughout the pandemic, the demand for self-storage remains high. Through the entire pandemic, the U.S. self-storage REITS outperformed all other property sectors.

Even though inflation will be high for the first half of the year, expect it to gradually decrease as the year progresses. The U.S. is not currently going through a 70’s style stagflation.

We know that the Fed is planning on raising short-term interest rates in 2022. We expect long-term interest rates to remain low which should keep the financing conditions attractive through 2022. We have noticed that there has been large swings in inflation during the pandemic but our economists are not expecting inflation to remain high.

Expect reductions in retail vacancies as tenants continue to lease Brick-and-Mortar retail property.

The pandemic has been hard on retail with all the masking and social distancing but as those requirements start to relax we have seen in-store sales increase as consumers still prefer to shop in brick-and-mortar stores for items where size, fit, and appearance are essential. By the third quarter of 2021, we saw brick-and-mortar sales come back with an $82 billion gain over the decline in 2020. It is worth noting that with this increase, e-commerce sales haven’t been impacted as they’ve continued to grow as well.

If you are interested in reading the entire report, you can find it here for download.

The buildings that were tallied were at least 50,000 square feet or larger and they were at least 98% vacant. They reported that the number of buildings that met this criteria across the country increased by 23% in the second quarter of this year. The growth tapered in the third quarter to only 19%.

Buildings can be vacant for a number of reasons, the Covid-19 Pandemic is certainly the first reason that enters our minds but vacancy can also be due to developers building spec properties for new companies headed to town. As an example, when I looked at the list of Zombie Buildings I noticed that Austin, TX was at the top and we all know that there are a lot of companies moving to that location so it isn’t surprising to see an increase in vacant office buildings in that market.

Take a look at the chart below to see who is leading this list and who lead it a year ago. In a previous post, we noted that the pandemic is going to accelerate trends that were already happening and new trends started from the pandemic aren’t likely going to last. Let us know in the comments below what trends you think are here to stay.

The article highlights two main areas, that is the growth will come back to the cities and it also briefly touched on some of the diversifying that office buildings are seeing.

The debate on whether remote work is here to stay or not was challenged at this event. They basically said that remote work is only temporary and they could see several reasons for why people would come back to the office. First, the cities will continue to grow because that is what we’ve seen for centuries. They claimed that the “urbanization rate has only gotten higher” for every census taken.

Another reason for a reduction in remote work was employees might be start noticing that they are working more hours remotely. A third reason was that bosses might begin to push for employees to return. Finally, another reason that people would ultimately return to the office is the person to person interaction is too important and we are more productive together.

Finally, the diversifying of office buildings was discussed. When institutional buyers are having a difficult time underwriting new office building purchases, there is trend to push office buildings toward other uses like residential or lab space. While this is not a bad idea, it doesn’t work for every building but the main point is some buildings will be re-purposed during this time.

The most insightful point that I pulled from the article was the answer to question about what will stay and what won’t stay from Covid, and the reply was, “I am of the bias that anything that Covid does that piles on an existing trend is likely to be forever and anything where Covid pushes back against what is a multidecade trend I find hard to believe that in five years we’re still going to see that trend with us.” In other words, if we’ve already seen the trend in place and Covid aligns with it, then we will likely see Covid further push us toward that trend and anything it doesn’t align with won’t be around for long.

I agree that remote working, at it’s current level, will not stay forever but I do think that there has been a trend for remote work for years and I do see that remote work being an option for many companies moving forward.

To read the article, see the link below.

The Pandemic is to blame for all of these supply chain issues. We are seeing issues with Southeast Asia and South America, where vaccine availability is limited as well as domestic labor shortages, we are going to continue to struggle with this in the future months.

Per the Costar article, here is a summary of what they pointed out:

• Low Labor Force Participation Continues to Slow Job Recovery
• Auto Sales Drop
• US Trade Deficit Widens

The supply headwinds will continue to push on the economy expanding at the rate we all want to see. There are almost 11 million open positions that are unfilled in our economy which will certainly present a roadblock to a full labor market recovery.

“The effects of supply chain disruptions on production are constraining consumers’ ability to spend.” According to the Bureau of Economic Analysis, auto sales are at their lowest levels since 2011 when households were recovering from the Great Recession. The result is low inventories and higher prices for consumers on both new and used vehicles. Furthermore, auto sales account for about 20% of all retail sales so due to the shortages we expect to see a drop in the overall retail sales.

With the issues that we are all seeing on labor and supply chain disruptions, many firms are warning consumers that they will see shortages this holiday season. Not only does it create an issue for gift giving, it creates a drop in income for the companies that rely on big holiday seasons to stay healthy.

Given the above, we will continue to watch as the balance of the year unfolds. We are also reports on inflation spiraling out of control and the consumer price index is set to be released next week which we all expect to see it moving up.

With regards to the real estate market, offices are still not at capacity and with all these vaccine mandates I’m hearing several of my clients express concern over employee shortages. While I’m seeing some ramblings of firms taking new space for longer terms, it is still spotty. Sublease space still gives a company an option to save money. I believe the markets will ultimately return and we’ll see employees come back but it is all being prolonged with the politics being played out in California.

The full article is below. I hope to share one more economic report in the upcoming days.

The first trend that the article points out is a shortage of demand relative to previous years, and specifically in San Francisco. The reduced demand in San Francisco creates more activity in the surrounding areas. One area seeing this demand is along the North I-680 Corridor. Workplaces out in the suburbs have become popular in the post pandemic market because of the easy commute for employees. Cities like Walnut Creek and Pleasanton are highly valued due to easy commutes for residents in the East Bay.

A second trend that was noted was corporate office space needs will likely become smaller in the future. The article states that most corporate office needs will be reduced because of the advancement of technologies like zoom, allowing employees to work from home while still maintaining the same amount of production. This trend was seen during 2020 as lease transaction sizes have dropped by 29%.

This pandemic also brought about the change in how companies view property. Organizations need the ability to move in the event of downsizing and or upsizing which will result in reduced leasing periods. Companies signing 25-to-30-year leases are less likely to occur because of the prioritization of agility.

Landlords should always be ready for turnover in their buildings and tenants should always be revaluating if their space is suiting their needs. If you need help strategizing the best use for your building or need to find a new place for your business feel free to contact me.

Thanks for reading,

Chris Crabtree  | 510-915-7645