As commercial real estate enters a new era, tenants are forging the path ahead
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With shorter leases becoming the norm in commercial real estate, upgrading existing buildings in convenient and accessible places to be equally as attractive as new flexible workspaces is a growing priority.
NAIOP – Hybrid Work and the Future of the Office
Pay-per-use and flexible space is emerging as the most in-demand option for smaller firms, with large organizations like the Government of Canada opting to hold onto their real property portfolios and explore repurposing.
Many indications this past summer pointed to a significant drop in the real estate market as hybrid work rendered whole buildings empty and without utilization. Research from NAIOP found that Office use is likely to grow, with 38% of occupiers indicating they expect utilization to increase and 60% indicating that utilization has stabilized.
Further studies from firms like McKinsey suggested that losses of hundreds of billions of dollars could be in the pipeline due to hybrid work, citing $800 Billion US from the value of some office buildings.
Even vacancies in cities known for booming downtown and business districts saw record vacancy levels, including Toronto, where access to the downtown core was a driving force behind rent and housing in the city.
So, what does this mean for commercial real estate in the future, with an influx of vacant office space hitting the market?
Cities like Ottawa, where the Federal Government owns or leases most of the property in the downtown core, are seeing plans to help shed some of the surplus space. Hybrid work strategies dictate a drop in demand for office space, even more so than initially anticipated.
Departments like PSPC are helping initiatives to divest 15 to 20% of the real property portfolios. Doing so is a massive undertaking and should only be done with careful and precise planning. Government initiatives around digital transformation and Horizontal Fixed Asset Review that are underway from the Treasury Board Secretariat (TBS) are indications that the Federal Government is looking to address this.
Wide-ranging divesting by organizations in real estate is a relatively new initiative. As a result, prioritizing the right tools and resources are put in place to achieve these goals and save on operating expenses.
Firms and business leaders are looking for ways to make the most out of the space they have, and a driving force behind this is employees’ changing attitudes towards the office. Epturas Q2 index report found that people wanted to go into the office for collaboration and to see their colleagues face to face. This forces a re-imagining of the surplus space that business leaders are sitting on, notably more flexible office amenities and short-term leases.
With flexible or on-demand space comes a lesser need for leases locked in for 5, 10, or even 15 years. Short-term leases give businesses flexibility around their offices if employee behaviours change or if they choose to go fully remote or plan to be fully back in the office.
Flexible space and a workplace that supports a positive employee experience are the future of work. This change in demand for space brings demand for updated space with more employee-focused design attributes. Now, this requires investment on behalf of business leaders to outfit their space with these upgrades to get a better return on investment from their lease.
With statistics indicating that in-person work is on the rise, as well as desk bookings and office utilization, organizations are looking to adapt their workplaces and real property strategies. As a result, some buildings will remain empty and unused, prime for refitting into flexible office spaces or something else entirely.
As reports from firms like Archibus find that vacancies are rising as real property investments decline, leaders must align business goals, workplace management, and real property strategy. Plotting a way forward that supports these areas helps prevent shifting real estate market trends from severely impacting portfolio investments and remaining agile in a changing work environment.
Tools and technology can catalyze initiatives like Fixed Asset Review and streamline the data that ultimately fuels decision-making in real property. Without comprehensive data on utilization, space, and facilities or asset use, success and project delivery are slower and more cumbersome.
In the end, shifts in real estate and property management that stem from tenant and occupancy changes present an opportunity to reinvent an area of our lives that has yet to see drastic innovation as of late. With talks of affordable housing retrofitting and flexible, on-demand office spaces, these changes mean a truly new era of work following the remote working boom we saw in the last few years.
Horizant supports more than 30 Federal Government Departments in their portfolio and workplace management strategies with specialized Archibus integration and business process analysis. Contact us for a free consultation or more information on your real property strategies and supporting the modern workplace.