Q: What’s your overall outlook for the office market?
A: Like every other commercial real estate asset class that’s faced challenges, office continues to reinvent itself in the wake of the pandemic. KBS believes in the ongoing strength of the office sector. Rather than looking at the future of office as a “return” (or as Forbes calls it, a “reboarding”), and asking if companies will come back, we know that companies will return and are returning. The real question is how is office going to redefine the way it is used and what does the evolution of office space look like as companies assess their needs and those of their teams?
While the Delta variant may have contributed to a slower return, more than 40% of the workforce had already returned by September 2021. Beyond that, most companies are planning to implement more permanent office use policies by early next year. Whether they offer a hybrid option or an in-person plan, firms have always needed and will continue to need office space to conduct their business successfully.
Many employees want more flexibility in where and when they work, but the majority still very much wants and needs a central place outside their homes that provides a productive and professional environment and the opportunity for face-to-face collaboration. In fact, 73% of people Indeed surveyed who worked from home during the pandemic say they miss socializing with their colleagues in person.
Companies are looking to office stakeholders to provide the environment workers have been missing, including all of the amenities that people can’t get working from home. There is a flight to quality in the office sector as companies seek well-appointed office space in great locations — a focus for KBS — to attract new talent and draw existing team members into the workplace once more.
Q: What are some key indicators of a post-pandemic renewal in office demand?
A: Virtual tours of office space for prospective tenants are on the rise, which is always a key indicator of renewed interest and demand. Also, office leasing activity is increasing as new demand for office space rose to a 15-month high in August and is now just 13 percent below pre-COVID-19 levels.
Among our own office properties, KBS has seen significant leasing activity in recent months. In fact, even during the height of pandemic restrictions, between March 2020 and February 2021, we leased more than 2 million square feet of office space, and in the first quarter of 2021 alone, we completed over 720,000 square feet in lease agreements — comprising new leases, renewals, and expansions — that included mostly office and some industrial space.
This activity demonstrates tenants’ ongoing commitment to having a physical office. It is also an indicator that many companies are planning to return to the office eventually because they are opting to keep, and in many cases, expand their office space.
Q: Which office amenities are helping to incentivize office occupancy?
A: Since the pandemic, health and wellness have become top priorities for office users. Office amenities that promote these factors may help to coax employees back to the workplace. This includes biophilia (plants and natural lighting), corporate gardens and outdoor amenities such as water features and landscaping. Inside buildings, upgraded HVAC systems that sanitize indoor air more effectively, configurations that allow for social distancing, and all of the protocols that have been encouraged during the pandemic to reduce viral transmission will continue to be in demand. KBS has always been an early adopter of these practices and the company recently committed to the verification of more than 16 million square feet of Class A office space in its client portfolio to achieve the UL Verified Healthy Building Mark for Indoor Air.
In addition, office users like amenities that offer convenience and pampering, such as concierge services and on-site gourmet dining options. The hospitality model is informing many office amenities these days. Forbes has suggested that the future of office will evolve to become more of a social club than a workplace — which makes sense as one of the things people miss most about the office is the socializing aspect.
Of course, amenities must be appropriate for each property. For example, at Accenture Tower, a top-tier 40-story trophy office tower in Chicago, we recently completed a series of multi-million dollar renovations that include a new office lobby inspired by the hospitality industry, a state-of-the-art conference center with a pre-function area, a contemporary tenant lounge with a 19-foot ceiling, a lush outdoor deck in a garden-like setting, fire pit, fully functional bar, and more. And we added 90,000 square feet of new and progressive spec suite space, a solution for companies in need of high-quality turnkey space. All of these amenities match what tenants in the market, and at this property, are seeking; we believe these renovations will exceed their expectations as we move into the next evolution of office.
Learn more about KBS here.