As the world has continued to go back to normal in a lot of ways, the office remains an outlier. What was once a mandated attempt at stopping the spread of a virus has now become a battle between employers and employees over work preferences. With occupancy now at a post-pandemic high, but still significantly below pre-pandemic occupancy levels, more and more companies are looking to lock down hybrid schedules and are asking their workers to come back to the office for at least some part of the week. Unsurprisingly certain days of the week are emerging as the least occupied, namely Monday and Friday. So, what are occupiers doing about all that empty space? It turns out, with a wealth of options now available, they are doing a little bit of everything.
The office dilemma
How office tenants use their space varies widely between industry type and location, as Avison Young’s Craig Leibowitz and Charlie Morris have noticed in their work and research on occupancy. Leibowitz leads the firm’s Innovation and Insight Advisory Platform, while Morris leads the firm’s Flexible Office Solutions practice. Though office badge swipes have been widely used as a measure of occupancy throughout the pandemic, most notably with Kastle System’s Back-to-Work Barometer, cell phone data, which is the main data source of the brokerage firm’s Vitality Index, can provide a more macro view of where people are and aren’t working. The index’s most recent data shows that visits to office buildings are the lowest of any property type, with education taking the top spot, followed by transit, retail, healthcare, and government offices. Compared to other property types, office occupancy still has a long way to go. “Clients are definitely still navigating the new normal,” said Leibowitz.
Extra space is something a lot of tenants purposefully build into their footprint, especially larger corporate tenants like law firms, who like to have extra conference room space for big meetings or events. But even in pre-pandemic times, these spaces didn’t really get used. Now, tenants with extra space like this are increasingly looking to monetize it as on-demand space for events, co-working, and more. “On-demand uses are at the top of every conversation,” said Morris, who has been advising clients on what to build out in the future that will best align with that trend. “Whether it’s co-working space, agile space, spec suites—you need people to come into your building to understand what you’re delivering. The on-demand world, it’s low-risk, it’s easy transactional opportunities for the occupier community.”
There are currently several online marketplaces that offer workspaces for rent by the day or hour, like Peerspace, Pivotdesk, LiquidSpace, Breather, and Radious. Spaces can range from small private offices in financial districts to pre-war townhouses and upscale event spaces. A listing on one site offered up an entire New York art gallery. But for office tenants looking to rent out space within their footprint, is it worth the time and effort, and more importantly, what about security issues? “Most companies tend to say it’s not worth it right now,” said Morris. While some companies may not want the extra hassle of renting out extra space for a day or two a week, others are trying out something akin to timesharing office space. Eschewing a traditional office lease, the model is geared toward smaller companies and startups that don’t require a lot of equipment or document storage. Companies work in a space for two or three days during the week, and another company occupies the space the other days of the week. “If we’re not going to need it, then we may as well not pay for it,” a worker at a company that timeshares an office in downtown San Francisco told the Wall Street Journal.
Landlords and occupiers have been digging deep to figure out what will make workers want to come back to the office, trying everything from virtual golf to F-35 flight simulators. Basically, anything that stands out is being tried out. But as we’ve learned over the last two-plus years, for many workers, productivity can happen outside of the office. With flex space performing well across the board, there are signs that workers are still interested in returning to a workplace, but not necessarily a centralized office and not necessarily in an urban environment. Avison Young’s Vitality Index shows that in the week after Labor Day this year, traffic to flex office providers was 79.1 percent compared to the week preceding the lockdown, while non-flex office providers’ recovery rate averaged just 45.2 percent. Suburban offices and flex offices have continued to maintain high levels of occupancy, in some cases 90 percent or more throughout the pandemic, further proving that for many people, the commute is the main barrier to going back to the office. While some workers may not want to return to a centralized urban office, they do want to work in a place with a certain kind of workplace energy that can’t be created at home. “That’s what people are looking for, that experience, and they don’t necessarily need to be surrounded by their own company,” said Morris.
For occupiers looking to rent out vacant space during the week, they face stiff competition from not only flex office space in both urban and suburban areas but also Airbnb-style workplaces that are picking up steam on online marketplaces. Amina Moreau is the founder of Radious, an online platform for short-term workplace rentals. It’s one of several startups that have launched recently as remote and hybrid work push demand for alternatives to traditional office space. Moreau launched the company in January of this year after starting with beta testing last summer. Users can choose from a wide range of workspaces to rent on a daily basis, most of which are in residential homes. “Just like Airbnb, every space is different,” said Moreau, adding that the spaces are a departure from “cookie-cutter” co-working spaces.
One space for rent on the site is a 1970s Airstream RV trailer, another is a house painted in psychedelic colors. So far, the site offers listings in Portland, Oregon and Milwaukee, Wisconsin, with plans to expand to more cities in the future. Just 4 percent of Radious’ current listings are spaces within commercial office buildings. “It’s very exciting timing, it couldn’t be better. Practically every company on the planet is talking about how to make remote and hybrid work sustainably for the future, and I believe this is how you do it.”
The rise of hybrid work in office settings has led to a lot of experimentation, especially in connecting office buildings to the surrounding community. That’s something near and dear to Andy Lantz, the Co-CEO of architecture and design firm RIOS. At his own company’s Los Angeles office, which has transitioned to a hybrid model, four times a year, they use a dedicated all-hands space that’s set up with picnic tables as a polling location. “It’s opened up a lot of really amazing connections through the community,” Lantz told me. RIOS also uses the space for events and even encourages its clients to co-work in the space before their meetings. He pointed to examples of clients engaging unused or extra space like Spotify, which opens up one of its recording studios in its Los Angeles office for community use.
Others have turned empty all-hands space into public space on days it isn’t being used in a way that doesn’t affect an office’s day-to-day functions. “We’re starting to see people making that investment and leaning into the real estate problem of not giving it up, but using their footprint to try new connections that really push the workplace forward, not only for the day-to-day of staff but agents in public realms,” Lantz said. Others have teamed up with local nonprofits and programmed events for spaces, like a livestream of a mural installation. Lantz and his team show the examples to clients during meetings to show them what’s possible. While not every client is gung-ho on the idea, it has been a hit with others. “Some people lean in and love the idea,” Lantz said.
With work-from-home and hybrid plans continuing to look more and more permanent, tenants will need to figure out their portfolio strategy and landlords will need to anticipate and provide for different space requirements as office needs continue to evolve. Flex space has become an important part of the workplace and companies can and should rethink their portfolio strategies to layer in flex options where they can for employees. More choices for employees can also mean more data for occupiers to understand how to best shape what their space footprint looks like. As occupiers, landlords, and even office designers continue to think critically about space usage and look at creative ways to fill it, it’s looking more likely that empty space during the week won’t stay empty for long.