Hybrid Work Revolution Could Leave Older Buildings Behind As Companies Return To The Office
After months of hesitation and uncertainty, several large companies have settled on March as the right time for employees to return to the office. But the manner in which they come back could have long-term consequences for the office market overall.
American Express, Meta Platforms Inc. and Wells Fargo & Co. will reopen their offices this month, according to The Wall Street Journal. All three companies have embraced hybrid work as a means of acclimating workers back to an office routine. At American Express, many workers will come in, on average, one to three days a week, according to the WSJ.
“After a very long wait, it will be good for many of us to see each other again in person and enjoy the connections, collaboration, and variety in our daily routines,” American Express CEO and Chairman Stephen J. Squeri said in a memo to employees in February.
The hybrid work revolution could accelerate demand for high-quality office space that is already being seen across major markets. According to Greg Fuller, president and chief operating officer of Plano, Texas-based developer Granite Properties, office properties built prior to 2015 are experiencing negative absorption, while the rest are seeing the opposite.
“The flight to quality and flight to location is really significant this time around,” Fuller said at a Feb. 25 Bisnow event.
In a recent interview with Wharton Daily Business, Joseph Gyourko, real estate professor at the University of Pennsylvania said companies offering hybrid work schedules will need flexible office space configurations, which could eliminate some older buildings that lack amenities and adaptable space.
“Over the next few years, as tenants start to rethink space needs and their leases roll over, they’ll go into better buildings, and the [worse] buildings will be in trouble,” Gyourko said in the interview.
Data shows that office attendance is growing but still nowhere near where it was pre-pandemic. Offices in 10 major cities were on average 36.8% occupied as of Feb. 23, up from about 32% earlier in the month, according to keyless entry provider Kastle Systems.
The ultimate fate of offices is unclear, but Gyourko said office owners may struggle to lease up older buildings. He added city leaders should begin bracing for the possibility of dealing with large swaths of defunct properties.
“Cities are going to have to think about what are they going to do with the empty office buildings, and what they do when the real estate, the retail, the restaurants, the Starbucks around those buildings aren’t needed anymore,” Gyourko said in the Wharton interview. “They should start thinking of this as their responsibility to rehabilitate those areas now, and not later.”