Since January 2020, Google’s parent company, Alphabet, has spent nearly $100 million expanding its commercial real estate portfolio in the United States, including a $28.5 million office it purchased in Sunnyvale, in California at the height of the pandemic.
Most recently, Alphabet announced in January that it would spend $1 billion on a campus-like office environment in London.
“We will introduce new types of collaborative spaces for in-person teamwork, as well as creating more overall space to improve wellbeing,” Ronan Harris, Google UK Managing Director writes in a post. of blogging. “We will introduce team pods, which are new types of flexible spaces that can be reconfigured in multiple ways, supporting focused work, collaboration, or both, depending on the needs of the team. The new renovation will also include covered outdoor work spaces to allow for fresh air to work. »
The goal, Harris said, is to provide employees with a flexible space with amenities to entice them into the office, while recognizing that many of them still want to work from home “a few days a week.”
The trend of desktop expansion goes far beyond Google. In 2019, before the COVID-19 pandemic, U.S. organizations purchased 60,346 commercial properties, according to Altus Group, a commercial real estate company. This figure fell to 57,174 in 2020, but rebounded last year to 78,354 properties.
And in the first quarter of 2022, organizations have already purchased 22,423 commercial properties. If this trend continues, the number of office buildings purchased this year would exceed those ripped up in 2021.
“The numbers are consistent with Google’s increase in office space hoarding, so it appears The Great Resignation isn’t weighing on companies valuing office space,” said Ray Wong, vice president of data operations for Altus Group. “We’ve seen a lot of activity among tech companies taking up more space, not just buying it, but renting it. Amazons and Facebook are all adopting the expansion strategy. »
The United States initially lost 138.4 million square feet (MSF) of office space in the year and a half following the declaration of the global COVID-19 pandemic. The data showed that more and more companies started to sublet their space as the workforce became more nimble. Given the uncertainty over what the hybrid workforce will look like, landlords and occupiers have started offering shorter lease and sublease terms, according to a 2021 report from the real estate firm. Cushman & Wakefield.
The shorter rental terms have proven to be the right move as businesses are now moving to reclaim this space.
Office sublet inventory fell for the second consecutive quarter, according to the latest report from Cushman & Wakefield.
“There is no single standard for the future,” Cushman & Wakefield said. in their latest report. “Most organizations believe the office is now the perfect place to build culture and inspire creativity and innovation. »
Based on the 90 U.S. markets tracked by Cushman & Wakefield, total leases in Q1 2022 increased 19% from Q1 2021, and four-quarter mobile rental activity was up 41% compared to last year. Rental of Class A office space accelerated even faster; it is up 47% year over year. With 349 million square feet of total rentals over the past four quarters, the United States is back above its historical pre-pandemic average of 1.4%, according to the firm.
“One thing I would say is that one size does not fit all. If someone tells you that everyone is shrinking their space as a result of the pandemic, it’s not true,” said David Smith, head of occupant research at Cushman & Wakefield. “Companies are rethinking the way this space is oriented. They focus on collaborative space and spaces of different sizes. We see companies looking to expand their portfolio. This is the right time to do so. We’ve seen it with other recessions – locking in space long term with better rates or concessions. »
As organizations begin to understand what a hybrid workforce will look like, many are expanding their square footage to create safer and more attractive workspaces that allow for more space between desks, the “hot desking” (sharing offices), large lounges or breaks and larger outdoor spaces. They are also hedging their bets that the workforce will continue to grow over time as their businesses expand.
“As time goes on, compared to a year ago, there’s more openness to come back to the office and Google and property owners are looking at what kinds of amenities will bring people in again,” Wong said. “With technology companies, they are going to grow and they anticipate what that growth is. They determined that they needed potential real estate to achieve their strategic goals.
“Ultimately, organizations focus on flexibility. »
The tech industry remained the main rental driver through the end of 2021, accounting for 21% of Q4 activity, according to Jones Lang LaSalle IP (JLL), a commercial real estate and services company. investment management. Tech companies added about 3.3 million square feet of leased office space in the last three months of 2021.
“It’s not just tech companies,” Wong said. “Some companies are expanding in anticipation of growth or realigning their space requirements to what they might need in three to five years. »
Last month, the average occupancy rate on Kastle System Return to Work Barometer rose to 40.5%, up from 39% in November 2021. This is the highest rate since March 2020, and all cities in the Return to Work Barometer saw occupancy gains. (The barometer measures occupancy rates in 10 metropolitan areas, including New York, Chicago, Houston and Washington DC)
Kastle Systems is a managed security provider for over 10,000 companies worldwide; it uses employee badge scan data to determine workplace occupancy.
In a new wrinkle, organizations are now choosing to lease new or renovated buildings over older inventory, which is more likely to be converted into residential space or senior living or assisted living facilities, according to Peter Miscovich, CEO of JLL.
Companies are also moving more to a co-working space or “hot-desking” model, where desks are shared, based on planned office work days, said Phil Ryan, US research director at JLL.
Office usage is slowly increasing, mainly because employee fears of COVID-19 are easing and global companies are mandating a certain level of office attendance, according to Robin Powered Inc., a provider of software that enables employees to reserve office time.
US employees worked in the office an average of 4.9 days per month, up from 3.7 days in December 2021, according to a new report from Robin. “…It’s good to see a slow and steady build, even though the Omicron variant slowed growth in this category in January,” said Eric Lani, Head of Product Analytics at Robin.
The United States and Europe saw an 18% increase in the total number of employees working from the office in Q1 2022 compared to the last three months of 2021, according to Robin.
“These numbers don’t tell the whole story,” Lani said in a blog post. “Despite consistent growth rates, the average daily occupancy rates of the two regions are very different. US companies have an office capacity of 25%, while Europe sits at 35%, indicating that EU team members work more frequently in the office. »
The bounce rate – the percentage of people who only come to the office once in a 30-day period – fell to 18% in Q1 2022, the lowest since spring 2021, indicating that people are coming back to the office more regularly, according to Lani.
Office traffic is not limited to employees. The average business hosts about five guests per month. The most common types of guests are corporate event attendees (20%) and customers (15%), according to Lani.
Companies that want people in their cubicles should focus on carrots, not sticks, according to David Lewis, CEO of OperationsInc, a Connecticut human resources consulting firm. In other words, let employees experience the benefits of being in the office for themselves instead of forcing them to be there.
Although office footfall remains below pre-pandemic levels, it continued to rebound through March, according to Cushman & Wakefield, with reimagined workspaces likely to generate additional demand throughout 2022.
Employees who had a positive experience on their first visit to the office came in 10% more often than those who had a negative experience, according to Robin Powered’s study.
Office recovery will be differentiated based on building quality, class, and submarket type. To date, suburban submarkets have recovered somewhat faster and Class A office space continues to be in higher demand. Class A offices are the most prestigious buildings competing for prime office users with above average rents for a given area.
“Workers want a quality experience in the office,” said Smith of Cushman & Wakefield. “They want better air quality and better access to the outdoors, and they want to be in the best places. All of these things are more important in an agile work environment and to make the office interesting and productive for the worker. »
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