Colliers Real Estate Management Services has referred to the rise of hybrid work as the “great experiment.” After almost three years, it’s clear we are in the age of hybrid work, yet companies continue to experiment and their space needs continue to evolve.
The New Age of Hybrid Work is the latest installment in our office report series that looks at what the rise of hybrid work means for real estate needs. To analyze our portfolio, we surveyed a diverse array of tenants across our 31 million square foot national office portfolio.
1. National office vacancy is set to peak at approximately 15% by the end of 2024, with economic growth predicted to reduce the upward pressure caused by the rise in hybrid work.
When considering multiple factors that affect office vacancy, including, economic growth, employment levels, office construction rates, and hybrid work, our forecasting models predict that vacancy will rise through the end of 2024 to reach a peak of approximately 15% nationally before it begins to decline.
b) The effect of the rise in hybrid work will be more pronounced in primary markets compared to secondary markets.
There is a higher concentration of small businesses in secondary markets. In our Q4 2021 report, small businesses were far less likely than international businesses to indicate their future workforce would be hybrid (52% vs. 91%). They were also more likely to say that wanted to keep their same office space (62% vs. 43%). The higher reliance on office space and shorter commute times for employees at small businesses are contributing factors to the difference in the effect of hybrid work between primary and secondary markets.
2. The average square foot (SF) of space per employee has declined 10% since the onset of the pandemic.
The rise in hybrid work and the subsequent rise in hoteling has led to a reduction in the average SF per employee. 44% of companies will not be providing a dedicated office or workspace to all employees. In turn, the average SF has declined from 280 SF to 250 SF. This represents a 10% reduction from what was reported at the onset of the pandemic.
3. The growing demand for flexible office space suggests it will encompass 8% of total office inventory in the market
Flexible office space is a unique arrangement between tenants and the space required for their operations. As companies consider their future space needs, the growing demand for “flex space” (flexible space outside of their core lease) suggests it will encompass a larger percentage of total office inventory in the market, up from 6% we predicted in our Q4 2021 report to 8% now. Flex space can refer to designated space in an office building that is shared by all the tenants in the building, such as bookable boardrooms or co-working spaces. It might also refer to short-term leases of turnkey space.
Editor’s note: In our Q2 2022 report, due to an error, it was misreported that demand for flex space was going to encompass 13% of total office space in the market. The correct figure was 7%. We apologize for this oversight.