The model is being used to test the waters and may not become permanent.
A modern hub and spoke model is slowly emerging through flexible office providers as companies reconsider their optimal CRE footprint, according to one industry expert.
“Most of our clients are telling us that they are actually looking to consolidate into locations – partly for efficiency reasons, but also because if people are going to be expected to come together when they’re in the office, then coming all into the same office as much as possible is probably the best way forward down the line,” said Julie Whelan, Global Lead of Occupier Thought Leadership at CBRE, on the firm’s Weekly Take podcast.
And Whelan says some of those large organizations are engaging with flex office providers that are scaled across the US and globally to create on-demand models or all-access subscription passes for their space.
“If they use it, they pay for it, and if they don’t, they don’t,” Whelan said. “And the beauty of that is that after six months or twelve months, the organization can look at the use patterns and actually determine if this was a success or if they need to change their model going forward.”
Whelan cautions that while CBRE “absolutely” thinks the model could pick up serious steam down the line, “it is very much being used to test the waters, and certainly not anything that we would consider to be a solid trend at the moment.”
Office usage is up: physical office usage hit 40.5% nationally last month, the highest since the onset of the COVID-19 pandemic in 2020., according to data from Kastle Systems. And the physical utilization rate has been climbing since then.
“As (return-to-office) plans ramp up, we expect office physical utilization to climb at least in the short run,” write Moody’s Analytics researchers Xiaodi Li, Victor Calanog and Kevin Fagan. “However, a multitude of surveys and early indications from initial post-COVID-19 work arrangements, it is likely that some workers will average around two days less in the office, which may ultimately form somewhat of a fuzzy ceiling at around 60%, with continued wide variance by office market, firm industry, and individual job type.”
For central business districts, the calculus over how to use space has been drastically altered. The gap between overall suburban and CBD vacancy levels narrowed from 190 to 50 basis points over seven quarters ending in Q4 2021, according to Colliers, while absorption in CBD markets clocked in at negative 719,525 square feet in the fourth quarter of last year.
“The ratio of employees to office space is forever changed,” Whelan says. “In past cycles, you have always had a lot of new office development that’s come online to be able to satisfy all the new job growth that’s happening throughout that cycle. Well, we believe going forward is that perhaps that’s not the case. Perhaps we actually don’t need a lot more office space. However, we do need the right type of office space.”
The trick will be figuring out the latter question, according to CBRE. Historically, office buildings in CBDs have relied on large, long-term, creditworthy tenants, but now those tenants – who Whelan say have been the “lifeblood” of those buildings – want something different.
“They still absolutely desire office space,” Whelan says. “However, they desire landlords that are going to be partners with them on their journey of, really, their employee experience…things like food and beverage, and fitness facilities, and green space, are, of course, very important. Those were always the bedrock of a class-A, quality office space, and they will continue to be in the future. However, there are real things that are differentiating some buildings right now.”
Specifically, the question of “what is Class A space” is changing moment to moment. Health and wellness has assumed center stage, with indoor air quality being a big concern, as well as sustainability and net-zero goals.
“There are a lot of things that are much more operational in nature, not to say even, flexibility,” Whelan said. “That’s a huge thing that we’re seeing as a differentiator for buildings where, yes, you may have that 100,000-foot tenant that’s still going to come into your building. But they might want to take down 60,000 square feet in that long term committed way, and then 40,000 of it be a little bit more flexible in order to help them ebb and flow with the needs of their business cycle, or whatever the uncertainty is that they’re dealing with. So these are very different things that are really defining what that next level of building is, that tenants are really after. And that’s what these buildings in these CBD’s need to do to really attract that next generation of talent.”