• The Office Picture Is Clearing Up, but Major Challenges Lie Ahead

    After the shock of pandemic-induced remote work, clarity is returning to the U.S. office sector, which is facing several major challenges in adjusting to new conditions.

    Nearly three years after initial closings sent millions of office workers home, a remote-work equilibrium has emerged in the form of the hybrid workplace model. Some form of hybrid—under which employees split their time between remote and in-office locations—has become the predominant work arrangement at many organizations, especially in major markets.

    While occupiers adopting the hybrid model cannot reduce their footprints linearly as their employers take fewer trips to the office, lower overall peak utilization means they do not need as much space as they once did. This has resulted in an inflection point among corporate real estate executives, who are now far more certain about their real estate strategies going forward.

    The resulting landscape has shifted to the tune of more than 400 million square feet of “missing” demand for office space based on expected leasing activity had historical trends prevailed. Furthermore, office tenants are zeroing in on high-quality, newly constructed space, even as they give back millions of square feet of space in older, less functional buildings.

    With job growth in office-using sectors slowing rapidly, and a deteriorating financing environment because of elevated interest rates, the road ahead for office investors is likely to be bumpy indeed.

    Source: www.CoStar.com