How can we make empty office spaces bounce back?

You are likely aware of the issues facing office real estate right now. Office spaces are standing empty. JLL’s most recent report states that office vacancy rates in the USA rose to a staggering 18.9% in the last quarter of 2022. This varies city by city, Dallas and New York are showing high occupancy rates. San Francisco on the other hand has lower occupancy. This is thought to be caused by the work culture in tech companies. This phenomenon is happening globally. In the last quarter of 2022, the global office vacancy rate was at 14.4%. 
 
The reason for the drop in occupancy is down to the changes in work culture that surfaced during the pandemic. People didn’t go to the office. The cost of office space vs who was using it was no longer viable. So many businesses opted for a more flexible model – the co-working space. It would be natural to assume that now the worst of the pandemic is over, the trend of co-working spaces will dwindle and people will return to the office, right? Well, this trend doesn’t seem to by dying out any time soon…
 
It seems like for the indefinite future, offices occupancy will remain rocky. Employees have had a taste of the flexibility that comes with home office. And they’ve proven that they can be just as productive, if not more, by working remotely. Only 34% of employees want to go back to working 3-4 days a week in the office. This news means that property managers of office spaces, need to put their heads down and think about how to generate new revenue avenues.
 

Understanding the cause: Why are offices empty?

 
It goes without saying, the reason office spaces are sitting empty is because of the major societal shift in our working habits. Pre-pandemic, only 23% of US Americans said that they frequently worked from home. Now WFH and hybrid work models are the norm, 92 million people in the USA are still working from home. In fact, 87% of US Americans would jump at the chance to work from home if they had the choice. This new norm isn’t exclusive to the US, in the UK 84% of workers plan to continue a hybrid work model. Despite this, executives remain optimistic, with 50% of them feeling that employees should spend between 3 and 5 days in the office per week. It’s not yet know if this optimism will become a reality.

With the home office trend shifting from a short term solution to a modern work requirement, it’s not too surprising to see that since 2020 the average office lease duration dropped from 5 years to 4 years. While office lease duration has naturally decreased in the last decade, it would be unwise to assume that the pandemic hasn’t affected this for the long run.

A result of this uncertainty has led to an increased interest in mix use spaces with boutique office spaces and co-working spaces. Businesses are turning to these methods because they offer flexibility and create a more attractive working environment. It helps them to stand out and draw in new business.

 

How to improve: How can property managers fill empty office space?

 
The time has come to think outside the box. Turn empty office spaces back into the bustling hubs that they should be. Property managers need to get creative and think of ways to repurpose empty office spaces. One massive advantage is that a lot of offices have attractive locations, good infrastructure and sometimes even great vehicle access. There is an untouched market to tap in to here: short-term leasing.
 
One industry that has remained untouched by the pandemic is the storage sector. Since 2010 it’s increased 50% and continues to be one of the fastest growing areas of CRE in the USA. Do you know who is always looking for extra space? E-commerce brands. It is a tedious, difficult task to find good warehouse space. This is especially true for brands doing pop-ups that require storage space for a short amount of time. Storage solutions aren’t exclusive to ecommerce brands, anyone looking for extra storage, as a short or long term solution, could turn to local offices for extra space.
 
Another option: mix use space. There’s a high chance a lot of the office space in a property manager’s portfolio is half rented out. What happens to the other half? They can turn it in to a desirable place to visit. Many CRE firms in this position are repurposing properties. The unoccupied areas make an attractive retail pop-up opportunity for brands that are looking for a place with healthy footfall. This could be especially true for take away concepts. There can be huge benefits for businesses to pop-up in office spaces, even if they are not at full capacity.
 
Office spaces have the perfect infrastructure to host small conferences or workshops. They already have the resources: power outlets, projectors, furniture, kitchenette areas and bathrooms. Utilize this. Give people a reason to come to these spaces, and they might just come back for more.
 

But where to start?

 
Once you’ve made the decision to start offering temp leases, you should have some sort of game plan. If you’re coming from office real estate, you might not be familiar with the retail, event, or restaurant leasing industry. It doesn’t need to be overwhelming, you just need the right process.
 
First, you need to identify what concepts suit your space. If a space lacks kitchen facilities, it is unlikely to appeal to a takeaway catering business. However, a space like that would be more appealing to a digital retailer as a pop-up or storage space. Identifying the use of a space makes it a lot easier when it comes to marketing the space.
 
Once you’ve nailed the use case of a space, you can concentrate on how to market it. Consider that your tenant is not an expert on real estate. They need to see detailed information with clear, attractive images of the space. Once you solidify these elements, you can take the space online.
 
The goal is to make it easier for prospective tenants to book online. Once tenants can easily send a request online, you need to think of how to increase bookings. This is where your online presence is everything. Having a booking platform directly on your site drives huge amounts of traffic (eyes) to your business. You can also easily raise awareness by talking about your offering on social media. Write blog posts about your short-term spaces on your website and use keywords to help contribute to SEO.
 
Specialized software can be a huge help when diving into short-term leasing. It handles the admin, by creating a smooth leasing and payment process while making it easier to market spaces online. This sort of software becomes a hub for all your leases. Creating a centralized hub for leasing activity, bookings, requests, messages, and payments. Likewise, it allows permission delegation, so teams can contribute to the process.

The future?

 
The office sector is still recovering. It is likely that office lease duration will slowly increase again, however it’s unlikely that these durations will go back to the same rate as they were in 2018. This signifies that it’s a problem that won’t go away. Property managers need a solution for the empty office space, or risk losing out. Adopting a flex leasing approach opens up these spaces for alternative uses. Be that a pop-up store or food concept, a seminar or conference, mix use spaces will attract more business and allow property managers to tap into new revenue streams.

 

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