Knowledge creation and business services companies who often require more office-space are predicted to spike by 20% over the decade, as predicted by Moody’s Analytics. The debate about the future of office environments offers no clarity for the sector, but if anything, raises another question whether to reduce or increase in square footage. Plenty of narratives have pointed to a very fractured near-future for office-work. Several key market analysts offer glimmers of a potentially divided market.
Barbara Byrne Denham and Thomas LaSalvia, key analysts from Moody’s Analytics suggest that the market is torn between the classic, density of ‘old-guard’ office or business centers, and emerging desires to reduce space in order to make hybrid-work feasible.
“2021 will be a difficult period for the office sector, ‘though they say a,’ seismic shift in the demand for square footage is unlikely. A lag in CRE market stress is likely, ‘they say, but will be followed by a’ slow and steady return to pre-pandemic rents and vacancy rates.”GlobeSt.com
year-over-year reductions in office vacancy rates of a minimum of 60 basis points in cities such as Phoenix and Raleigh, and similar 2020 showings from Denver and Austin, encourage experts to affirm the emerging hybrid model. Meanwhile negative annualized average effective rents are showing up out of what Globe St. calls ‘old guard’ office cities.
“Annualized average effective-rent 2021 forecast for so-called “old guard” office markets like Chicago, New York City, Los Angeles, and San Francisco clocks in at negative 8.3%.”
The divide prompts market analysts to forecast a sweeping battle over the next several years, with 2021 being the ever important transitional year from pandemic to post-pandemic life. Certain cities will embrace the emerging model of hybrid-work and others won’t. Moody’s Analysts Denham and LaSalvia certainly think there will need to be a compromise for some businesses who want to require their employees to come back to the office full-time, and that is the question of adding more space in order to adhere to social distancing standards that will remain.
On the other side, operational costs and energy consumption could lower for the companies who will only require its office employees to come in part time, and the rest from home. In short, this year will be a tumultuous one for the office-sector but growth in the knowledge creation and business services entities should supplement the market back to pre-pandemic heights.
It would behoove specialists of office markets—and agents looking to capitalize on the fractured outlook—to align themselves with the real estate needs of current or prospective clients with significant office space, especially if they are one the aforementioned company types. From the rise in hybrid models to the evolution of new corporate roles which will be directly responsible for entity real estate decisions, there is profit to be earned when considering the various ways in which office workers will be called back.