Office markets may undergo significant changes in the months and years ahead. There has been a trend in recent years towards less space per worker and greater use of shared workspaces and common areas. The next few years will almost certainly see a move towards less density, and it is unclear how much overall demand for office space will decline due to WFH if there is an offsetting increase in the space per worker.
WFH has both plusses and minuses, and lately many employers are finding significant drawbacks. For example, there are significant benefits of face-to-face meetings that online video conferences cannot capture, and some activities are more successful in-person, like planning new projects, building new work teams, certain collaborative and creative efforts, or monitoring and disciplining underperforming employees. The informal meetings that happen by chance in the hallway often spark productive collaborations across work groups.
Another key question is, what will happen to enclosed individual office space if flexible WFH becomes widespread? Will professionals with their own office, bookshelves, filing, and personal space continue to expect this in the future? If so, WFH could mean that every third or fourth office sits empty on any given day but does not reduce the total office space required. Alternatively, will these professionals agree to rotating to whatever space is available on any given day? Such an approach would economize on total space needs but would require changes to working-day patterns. There are many unanswered questions about how the office workspace will change.
WFH may impact different geographic markets in different ways. A reduced need for in-person meetings has significant implications for the geographic choice of an office location. When physical meetings dominate the workday, a central downtown location that is closer to other offices can attract a significant premium. With greater online communications, though, businesses may shift to locations in suburbs, office parks, or in smaller cities for a greater portion of their total staffing needs. In addition to lower rents, these locations often have an easier commute and may be closer to residential areas where many employees live, and these locations may have more parking available. Such a shift may reduce the premium for rents and property prices in the downtown areas of major cities, but boost rents and prices in the suburbs and smaller metro areas.
This is a selection from the Nareit Fall 2020 Economic Outlook, which analyzes the current state of commercial real estate markets, as well as potential longer-term structural changes that are evolving during the pandemic. See the full outlook for a discussion of other major commercial property sectors.