Hybrid Work Seems Here To Stay, But It Could Be Years Before Houston Companies Find Normalcy
Texas has led the national pack in terms of employees coming back to the office, but the needle hasn't moved much in months, hovering around 55% returned since early this year.
More than two years after a shift in workplace culture and the widespread adoption of hybrid work, office experts are still unsure what the future of the office holds and when or whether we'll ever return to the pre-pandemic status quo.
Over the past months, Texas cities have boasted the most workers back in the office, according to keycard security firm Kastle Systems. But the city with the highest figures, Austin, is now seeing 58.8% of its workers back, only a slight uptick from 58.3% in March, though it spiked as high as 61.2% the week of May 18. In Houston, the figure has changed only a little more, with 56% of its workers back, up from 52.4% in March. Other top office markets, like New York City, San Francisco, Philadelphia and Washington, D.C., have remained virtually unchanged week-over-week, according to last week's Kastle data, suggesting return to office is locked in a holding patten.
Houston office experts don't agree on which direction workplace culture will take. But they are united it will take several more years to know whether companies will follow the lead of bosses like Elon Musk, who earlier this week ordered Tesla employees to get back to their desks or find new jobs, or embrace a permanent hybrid future.
"I think it's going to take time for the big companies to figure out what that hybrid looks like and what works for each companies," CBRE Senior Vice President Kristen Rabel said. "Different industries are going to have different things that work for different people. The most [widespread] thing that we're seeing is three days in the office and two days work from home or work from anywhere."
Erskine Black, vice president of tenant advisory and workplace solutions at Transwestern, said he does not have any clients who are back in the office full time yet. Some of his clients in nonprofits, banking, energy and logistics are considering it, but Erskine agrees with data — like that seen in a new CBRE U.S. Office Occupier Sentiment Survey — suggesting that a hybrid structure with set work-from-home and in-the-office days will likely be the most accepted by office tenants.
Over 60% of surveyed office tenants are applying the guided hybrid structure, according to CBRE, while now only 19% of tenants intend to be fully in the office, down from 30% last year.
"My clients are essentially trying to figure out what makes sense for their internal and external stakeholders by monitoring industry trends and embracing the hybrid work model, which is crucial for hiring and retaining staff and staying competitive," Black said. "They realized that many of the employees have used the remote work opportunities to cut expenses and relocate from where they work."
Both Rabel and Black said lingering uncertainty from the pandemic means it will take time for office tenants to figure out if the partial work-from-home model can be productive and successful.
"[Covid-19] is here to stay. So now we've got a new normal," Rabel said. "What does that look like? I think people are hesitant to be the leader of the pack in terms of dictating what [workplace structure] is going to look like."
Most tenants seem set on changing the size of their office footprint — they're just split on if they'll grow larger or smaller. Just over half of tenants surveyed by CBRE stated that they would contract their spaces, and both Rabel and Black say that they've seen Houston companies consolidate several Houston-area offices into one to save money.
Another 40% of tenants plan on expanding offices, instead. And while 27% of tenants intended to keep their spaces the same size last year, just 9% don't intend on making changes this year.
"There's still going to be big companies that have a CBD office and a Galleria office, but sometimes they have three or four satellite offices in the Galleria and they really need just one, central one," Rabel said.
Though there was pent-up demand for office space in the beginning of post-pandemic recovery, Rabel admits leasing is slow in Houston now. She's also seeing more clients sign lease expirations early.
"I do think, until we [see] new tenants moving to the Houston market, it's going to be a fight for every deal, and I think it's going to be a little on the slow side in Houston," she said.
A separate CBRE Houston market report characterized office as "stagnant," noting leasing volume waned in the first three months of the year, asking rents declined and construction activity ground to an abrupt halt, with no new projects underway after builders delivered 2.7M SF in 2021. Total office vacancy sat at 24.2% in Q1 2022.
"Supply will continue to outweigh demand, and the vacancy void will not be filled unless we see significant local growth or headquarter relocations to Houston," the report concluded. "Footprints are generally shrinking, as a significant number of tenants in the market are downsizing by 30% to 50% due to industry pressures plus remote work initiatives."
Black was unwilling to write off an office recovery just yet, however.
"There will always be a demand for office space, because companies are trying to figure out what works for them," he said. "[For] some employees, remote work environments are not conducive for them to produce the most, and for those reasons, companies will incentivize employees to come back to the office, through offering discounts on parking or meals."