“We likely won’t see a return to the far side of densification within an office space, but we also likely won’t see a full swing the opposite way to the elimination of the office altogether.”
Musings over the “death of office” post-COVID-19 are likely overblown—at least according to a panel of experts convened by Trepp recently to discuss the sector’s path forward.
Instead, office employment will likely pick up while office use moderates, achieving a balancing effect, said Glenn Mueller, a professor at the University of Denver. And what’s more, the sector experienced something of a “pendulum swing” over the course of the pandemic: prior to COVID, the industry had just seen intense “densification” of office space, as distance between desks shrank and co-working heated up. But as Dr. Tori Kerr, managing director at Hines, noted in the Trepp call, the metrics of square feet per employee in a typical office setting doesn’t compute with post-COVID density comfort of requirements.
The experts on the call agreed by that by January 2022, the pendulum may swing back to neutral. “We likely won’t see a return to the far side of densification within an office space, but we also likely won’t see a full swing the opposite way to the elimination of the office altogether,” Trepp analysts noted in a report summarizing the panel.
And much of this will be driven by younger workers, who don’t want to work in small, expensive apartments in dense cities by themselves. As JLL Chief Economist Ryan Severino noted, younger workers (namely millennials) typically move to dense urban cores to be able to work an environment that fosters collaboration, facetime with leadership teams, and networking on a much more personal level.To that end, Kerr predicted we’ll see a more “we” than “me” model going forward, as spaces morph to give employees a tangible reason to leave their homes and commute into an office.
Already the markets are seeing a hint of recovery as office leasing rates are slowly climbing out of their pandemic depths, with average asking rents inching up 1.4% year-over-year last month to an average of $38.67 per square foot, according to CommercialEdge data. Manhattan remained the priciest market nationwide, with an average listing rate of $85.82 per square foot, followed by San Francisco, with average rates of $69.66 per square foot. The overall Bay Area market came in third, posting rates of $57.11 per square foot, the highest average full-service equivalent listing rate across the markets analyzed by CommercialEdge.