Google and others increasing office space in expectation of a large comeback

 

Companies are buying and leasing more office space in anticipation of workers returning to their desks — at least on certain days — in a 180-degree flip from early in the epidemic. However, these spaces may appear very different from the pre-pandemic office.

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Since January 2020, Alphabet, Google's parent company, has spent about $100 million on extending its commercial real estate holdings in the United States, including a $28.5 million office in Sunnyvale, California, purchased during the height of the epidemic.

In January, Alphabet announced a $1 billion investment in a campus-style office setting in London.

"We'll be offering new sorts of collaborative spaces for in-person teamwork, as well as creating more overall space to boost wellness," Ronan Harris, Google UK's managing director, said in a blog post. "We'll offer team pods, which are adaptable new space types that can be adjusted to enable concentrated work, collaboration, or both, depending on team requirements." The new renovation will also include outside covered working spaces, allowing employees to work outside in the fresh air."

The idea, according to Harris, is to provide employees with flexible workspace and amenities to entice them to return to the office, while acknowledging that many of them still choose to work from home "a couple of days a week."

The tendency of workplace growth extends well beyond Google. According to Altus Group, a commercial real estate business, US organisations acquired 60,346 commercial properties in 2019, prior to the COVID-19 pandemic. This figure fell to 57,174 in 2020, but rose to 78,354 last year.

Organizations have already acquired 22,423 commercial properties in the first quarter of 2022. If this trend continues, the number of office buildings purchased this year will exceed those purchased in 2021.

"The data reflect Google's surge in collecting office space," said Ray Wong, vice president of Data Operations for Altus Group. "There has been a lot of activity among IT corporations taking on more space, not just buying it, but leasing it." The Amazons and Facebooks are all pursuing a growth plan."

In the year and a half after the declaration of COVID-19 as a worldwide pandemic, the United States dropped 138.4 million square feet (MSF) of office space. Data indicated that as the workforce grew more nimble, more enterprises began subleasing their space. Given the uncertainty about how hybrid workforces would appear, property owners and occupiers began proposing shorter lease and sublease periods, according to a Cushman & Wakefield 2021 analysis.

Companies are now seeking to retake that space, therefore the shorter lease periods proved to be the appropriate option.

According to the most recent Cushman & Wakefield research, office sublease inventory has decreased for the second consecutive quarter.

"There is no one future norm," Cushman & Wakefield stated in their most recent study. "Most firms think that the workplace is currently the best place to foster culture and inspire creativity and innovation."

Total leasing in Q1 2022 was up 19% from Q1 2021 in the 90 US markets tracked by Cushman & Wakefield, and four-quarter rolling leasing activity was up 41% from a year before. Class A office leasing has surged much further; it is up 47 percent year on year. According to the business, with 349 million square feet of total leasing over the last four quarters, the US has returned to its pre-pandemic historical average by 1.4 percent.

"I'd say that one size does not suit all." "It's not true that everyone is downsizing space in the aftermath of the epidemic," said David Smith, head of occupier research at Cushman & Wakefield. "Businesses are reconsidering how that space is arranged. They are focusing on collaboration space and various sized areas. We are seeing firms wanting to diversify their holdings. This is an excellent opportunity to do so. We've seen this in previous recessions: lock in space for the long term with lower rates or discounts."

Many firms are extending their square footage to provide safer and more beautiful workspaces that enable more space between workstations, "hot desking" (sharing desks), huge lounge or break rooms, and larger outdoor spaces as they begin to figure out what a hybrid workforce would look like. They're also betting that when their firms develop, their workforces will expand as well.

"Over time, compared to a year ago, there's more of a willingness to come back into the workplace," Wong said. "Google and real estate owners are looking at what types of facilities will lure workers back." "Tech businesses are going to expand, and they're predicting what that growth will be." They've concluded that they'll require prospective real estate in the future to accomplish their strategic goals.

"The underlying line is that corporations are preoccupied with flexibility."

According to Jones Lang LaSalle IP (JLL), a commercial real estate and investment management services business, the technology industry will continue to be the primary leasing driver until the end of 2021, accounting for 21% of Q4 activity. In the last three months of 2021, high-tech enterprises added around 3.3 million square feet of leased office space.

"It's not just IT companies," Wong explained. "Some businesses are growing in anticipation of future development or realigning their space requirements to what they may demand in three to five years."

The average occupancy rate on Kastle System's Back to Work Barometer increased to 40.5 percent last month, up from 39 percent in November 2021. This is the highest rate since March 2020, and every city in the Back to Work Barometer showed an increase in occupancy. (The barometer tracks occupancy rates in ten major cities, including New York, Chicago, Houston, and Washington, D.C.)

Kastle Systems is a managed security supplier to over 10,000 businesses worldwide; it determines workspace occupancy using employee badge-swipe data.

According to Peter Miscovich, managing director of JLL, organisations are now preferring to lease new or refurbished buildings over older stock, which is more likely to be transformed into residential space or senior living or assisted living facilities.

According to Phil Ryan, US research director at JLL, corporations are also embracing a more collaborative space or "hot-desking" model, in which workstations are shared based on planned office workdays.

According to Robin Powered Inc., a manufacturer of software that allows employees to reserve desk time, office utilisation is gradually increasing, partly because employees' COVID-19 anxieties are alleviating and worldwide firms are enforcing some degree of office attendance.

According to a new Robin research, US employees worked from the office on average of 4.9 days per month, up from 3.7 days as recently as December 2021. "...It's encouraging to see a moderate and steady rise, even if the Omicron variation halted growth in this category in January," said Eric Lani, Robin's product analytics manager.

According to Robin, the overall number of workers working from home increased by 18% in both the United States and Europe in Q1 2022 compared to the final three months of 2021.

"These stats don't convey the entire story," Lani wrote on her blog. "Despite steady growth rates, the two areas' average daily occupancy rates are substantially different. US enterprises have 25% office capacity, whereas Europe has 35%, indicating that EU team members work from the office "a lot more frequently."

According to Lani, the bounce rate — the number of individuals who come into the workplace only once in a 30-day period — fell to 18 percent in Q1 2022, the lowest since the spring of 2021, showing that people are returning to the office more routinely.

Employees aren't the only ones who use the office. The typical organisation receives about five visitors every month. According to Lani, the most prevalent categories of guests are business event participants (20%) and consumers (15%).

According to David Lewis, CEO of OperationsInc, a Connecticut-based HR consulting business, companies that want workers in their cubicles should focus on incentives rather than sticks. In other words, rather of pushing people to come to work, let them to discover the benefits of doing so.

According to Cushman & Wakefield, while office attendance remains below pre-pandemic levels, it has continued to improve through March, with reinvented workplaces set to generate more demand into 2022.

According to the Robin Powered research, employees who had a favourable experience on their initial office visit came in 10% more frequently than those who had a poor experience.

Building quality, class, and submarket type will differentiate the in-office recovery. To date, suburban submarkets have recovered slightly faster, and Class A office space remains in great demand. Class A offices are the most prestigious buildings vying for prime office users, with rents that are higher than the norm for the region.

"Workers want a good office environment," said Smith of Cushman & Wakefield. "They want improved air quality and outdoor access, as well as to be in the greatest sites." All of these factors are more crucial in an agile work environment, as well as making the workplace desirable and fruitful for the employee."