Work From Home Impacts on Office Space

Office space demand

If the pandemic has taught us anything it is that working from home (in some form) is here to stay for many employees as they have demonstrated the same level of productivity from the comfort of their own homes during the pandemic. So, what does this mean for the office space that was once occupied? Recent surveys indicate a demise of the traditional office is significantly overstated.

Diana Olick, a senior climate and real estate correspondent at CNBC observed, “New office demand took off in March [2022], it jumped 20% from February and up 8.2% from a year ago. Demand for office space is still 2/3 of the pre-pandemic average.” More recently, the VTS Office Demand Index indicated in May 2022 that, “[w]hile underperforming nationally by 5.1% points in April compared to the average seen in April pre-pandemic, new demand for office space is still up 12.1% quarter-over-quarter”. So, despite not yet returning to pre-pandemic levels, we continue to see an increase in office use and occupancy.

What does this mean for real estate investors?

This continued growth in office demand demonstrates real estate investors should continue to include office assets in their portfolios. Many companies have embraced the hybrid work method (working from home and the office during the week) to the approval of their workforces. Thus, while companies may shift their ideas of how and when office space is used, they will not abandon the traditional office as a place to work, collaborate and gather. It is critical to both corporate function and culture.

The economics of a decrease in office space demand.

How does the increase in working from home affect large office markets such as New York, Chicago, or San Francisco? These cities have historically thrived on bustling central business districts with high rises full of workers. Surveys and statistics show even these hard-hit markets are recovering (with San Francisco lagging behind other markets significantly). Moreover, secondary and tertiary markets were far less impacted and many have already reached pre-pandemic occupancy levels.

Sago is always seeking attractive office asset investments in various markets across the United States.

Submitted by Matt Schaub