Following two and a half years of transformation, workplace perspectives and views on the commercial real estate sector are finally stabilizing, according to the 2022 BOMA International COVID-19 Commercial Real Estate Impact Study.
Drawing on the responses of more than 1,200 office space decision-makers and influencers, the report reveals a shifting marketplace as corporate office tenants reevaluate their perceptions of office usage. Along with stabilizing attitudes, another key finding addresses the growing importance placed on in-person office setups — however, these are expected to look notably different compared to pre-pandemic times.
This third U.S. tenant sentiment study from BOMA International, Yardi and Brightline Strategies aims to provide a comprehensive overview of the pandemic’s wider impact on CRE, tenants’ shifting attitudes regarding the physical work environment and to discover opportunities for commercial operators who are committed to redefining the future of the office.
The Importance of Physical Office Space
Tenants are placing a higher value on physical office space despite the long-lasting impact of COVID-19 on the sector. A notable 86% of tenants nationwide responded that office space is or will be essential for running a successful business, marking an 8% increase from 2021 figures. The importance of office space was highest among Class A tenants (90%) and those occupying more than 5,000 square feet.
A recurring theme is having a “home base” community for connection, which includes space for larger group gatherings, as 78% of respondents believe that having a location for client and customer interactions is fairly to very important.
Lease renewal intensity has returned to pre-pandemic levels in the summer of 2022. While 72% of respondents intend to renew their leases, 54% prefer a shorter lease term of 3 to 5 years rather than the 7-to-10-year pre-pandemic standard.
Occupancy Shifts and Return-to-Office Trends
Regarding “go forward” planning and a focus on safety, 76% of respondents said that their coworkers and employees generally favor returning to their physical office spaces. And 78% of coworkers and employees speaking for themselves stated that they are comfortable with going back to the office. This finding indicates a stabilization in health concerns and better alignment on COVID-19 safety attitudes than in earlier surveys.
On the other hand, 60% said that reacquainting employees with the in-person office setting might be challenging, which slightly tempers the return-to-the-office enthusiasm.
Remote and Hybrid Work Model Preferences
While support for the value of in-person office space has grown compared to previous years, positive sentiment toward telework has also increased year-over-year, reaching 55%. Tenants who pay the highest rent per square foot remain the most supportive, while smaller tenants tend to be less supportive of the work model.
Managers and their employees tend to agree on the ideal hybrid work schedule, with 61% of managers supporting at least three to four days per week in the office, in line with 60% of general office employees. Regarding the idea of 100% remote work, only 16% of employees said they would support it, while another 10% would prefer working closer to home in a company-provided workspace. Of the organizations that responded, 29% said they will move toward mostly or full-time telework in 12 to 19 months, marking a slight uptick from 26% in 2021.
Family obligations, commute times and costs, and the overall health benefits of remote work are the main reasons employees prefer it. Workers not liking their office buildings or suites, the locations their workplaces are situated in, and inadequate amenities were among the lowest-ranked factors, indicating that convenience is more important here than the quality of the office environment.
On a regional level, support for remote work has increased considerably in California and the Northeast, while the Southwest has seen the most significant decline.
Reevaluated Square Footage Needs
Most of those surveyed (70%) said they will reevaluate their office space needs, while another 14% are still determining their reassessment plans. California, Texas and the Northeast were among the regions where the likelihood of reevaluating space increased significantly, joined by tenants paying the highest rents per square foot and those with the largest footprints.
Respondents revealed that reassessment plans will be based on factors such as pandemic impacts, rising telework trends and decreasing revenues. While more than half (51%) are leaning toward reducing their footprint, 36% are thinking of expanding or maintaining their current office square footage.
Of those with space reduction intentions, 67% chose increasing remote work/telework as a significant factor. In contrast, the high cost of office space and the overall elevated cost of doing business was a concern for 71% of respondents.
Amenity-Oriented Tenant Expectations
In terms of amenities that would incentivize remote and hybrid employees to return to the office, 78% would prefer an approach “beyond the status quo of typical amenities.” Hence, adapting offices for remote and hybrid workers was a top priority for tenants. Professional development events, commuting incentives such as stipends and parking reimbursements, and more social events were among the most popular changes planned.
And when it comes to the value of office space, 73% of respondents emphasize the importance of social connection. In addition, the majority (75%) stated that having a physical workspace that encourages innovation and new ideas while also providing the necessary space and technology for collaboration is fairly to very important.
The 2022 BOMA International COVID-19 Commercial Real Estate Impact Study found that both employers and employees value the physical office environment. In addition, the research has brought new clarity to pandemic-related responses and lease renewal intentions, tenant sentiments regarding COVID-19, its effects on businesses, and their viewpoint on in-person office workspace and office space decisions going forward. The findings pave the way for the reinvention of the office workplace, providing owners and operators with opportunities to transform the office environment in accordance with current tenant preferences and expectations.