The commercial real estate market is undergoing significant changes as major corporate employers are planning to reduce their office space in the next three years. According to a survey conducted by Knight Frank, half of the largest companies with over 50,000 employees expect to shrink their global portfolios, with anticipated reductions ranging between 10 percent and 20 percent. In contrast, a majority of smaller businesses, those with fewer than 10,000 employees, expressed plans for office space expansion, with 55 percent expecting their office footprint to grow.
Knight Frank’s global head of occupier research, Lee Elliott, highlighted that corporate decision-makers are now considering a broader range of business factors, beyond just the pandemic, to shape their future real estate strategies. “Now that we are in a truly post-pandemic world, corporate decision-makers are ‘removing the blinkers’ and making clear decisions around their future corporate real estate strategy based on a broader array of business issues than just the pandemic,” he said.
The rise of hybrid working arrangements during the pandemic has raised concerns about the potential obsolescence of office spaces in cities worldwide. Already, cities such as Los Angeles, San Francisco, and Boston have witnessed landlords relinquishing properties due to soaring vacancy rates, except for highly desirable new spaces.
However, the limited construction activity in many markets has resulted in a scarcity of premium office spaces that meet top environmental standards, which are crucial for large businesses aiming to achieve their sustainability goals and attract employees back to the office.
Consequently, rents for high-quality spaces remain stable despite diminishing demand for older, outdated buildings. Tim Armstrong, Knight Frank’s global head of occupier strategy and solutions, emphasized that the growing obsolescence of buildings, both functionally and physically, is driving occupiers towards superior, sustainable, and amenity-rich spaces.
“A rise in both the functional and physical obsolescence of buildings will drive occupiers to higher quality, more sustainable and amenity-rich space, but the supply of this space is coming under increasing pressure in global markets,” Armstrong said.
Nevertheless, the supply of such spaces is facing mounting pressure in global markets, concluded the report.
