By KIMBERLEY HAAS
As the commercial real estate market continues to change, office space is down, but not out, according to an economist who says a majority of companies are still committed to having a place where the “secret sauce” of their business is created.
Richard Barkham, global chief economist for CBRE in Dallas, said it may take up to nine years for the office market to fully recover but it is important to remember that not all of that sector has been badly hit by drops in value.
Barkham said that a large portion of the vacancies are in a minority of the stock, with 80% of the rise in vacancies in 10% of office buildings.
The office buildings with higher vacancy rates tend to be older, have less amenities, and are located in less desirable work settings. Barkham said these buildings will probably have to be converted or pulled down due to fundamental challenges.
The good news for offices, Barkham said, is that nearly four out of five global large companies are committed to maintaining a workspace for employees.
“We’ve just done a global survey of big companies, occupiers, and we’re very pleased to find that 77% of global large corporations remain committed to locating in the office either mainly full time, but sometimes half time in the office. There’s a big portion of corporate America for whom the office remains fundamental to their operating model,” Barkham told the Mortgage Note.
Barkham said because of high interest rates, companies may be taking advantage of a flexible workforce to reduce office space, but office leaders recognize the importance of having people at work in-person.
“I do think that demand for office will come back when the economy comes back because so many companies need that as part of their secret sauce for getting their culture, training up young people, getting new ideas flowing. The office sector is hard hit at the present time. It’s down, but it’s not out, and it will come back,” Barkham said.
CBRE is a commercial real estate service and investment firm.
Barkham spoke at the National Association of Real Estate Editors conference in Las Vegas on Wednesday morning.
In the afternoon, attendees heard from Amber Schiada, head of Americas Work Dynamics and Industries Research at the commercial real estate and investment management company JLL, and Scott Ziegler of Ziegler Cooper Architects in Houston. They spoke about designing a new workplace in a post-Covid world
Schiada said companies are still in the seventh inning when trying to figure out their plans for in-person, hybrid, and remote work. Employees enjoy the flexibility of working from home and want to avoid a commute if they are going to sit on Zoom calls in the office anyhow, she said.
It’s up to company leaders and CEOs to figure out the right carrot to dangle in front of employees if they want them in the office on a more regular basis, Schiada said.
Ziegler said there are ways to attract employees back to the office with more baristas and lounge areas. He said having employees working in person is the way to not just collaborate, but train the next generation of company leadership.
“Everyone likes to feel like they belong to a winning cause,” Ziegler said.
Ziegler said employers need to step up to the plate when it comes to getting people back into the office.
“I think they’ve been very timid and I think they need to take a little bit more of a hard line,” Ziegler said.
A UK-based real estate firm survey released on Tuesday found that about 50% of major global companies will need less real estate in the next three years, with the most common reduction in the 10% to 20% range, according to writer Hanna Ziady at CNN.
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