We wanted to share the latest insights from the Spring 2023 U.S. Office Occupier Sentiment Survey conducted by CBRE. This survey aimed to capture the sentiments and strategies of companies regarding office occupancy. We have summarized this report into a few key points. Based on our recent experience over the last Quarter, we are experiencing these trends in real time. The key points are:
1. Emphasis on Return to Office: A significant majority, 65% of respondents, reported that their companies now require employees to return to the office. This indicates a notable shift in work arrangements.
2. Changing Work Culture: The survey reveals a decline in support for a balanced mix of office and remote work. In 2023, 45% of respondents favored a mostly or entirely office-based culture, compared to 37% in 2022. We continue to experience this shift based on our interactions with current and prospective tenants within our existing markets.
3. Office Utilization Expectations: Although work culture is evolving, nearly 40% of respondents anticipate increased office utilization. 71% of survey respondents are projecting a steady state office usage by mid-2024. To further support this projection, VTS CEO, Nick Romito, recently reported that Demand for office space nationwide rose 31.3% from February to March, according to the latest VTS Office Demand Index. The index, which ranks unique new tenant tour requirements, both in-person and virtual, of office properties in core U.S. markets, jumped 15 points to 63 in March.
4. Impact of the Weakening Economy: While 45% of respondents reported no impact from the weakening economy, 40% highlighted an increased urgency among C-suite executives to bring employees back to the office. Financial services occupiers, in particular, were more inclined (58%) to prioritize office return efforts compared to the overall average.
5. Challenges of a Balanced Hybrid Strategy: The survey results indicate a waning popularity of the balanced hybrid work strategy. This shift can be attributed to the difficulties in space planning and creating critical mass in the office under such an approach.
6. Importance of Clear Communications: As more companies focus on maintaining or boosting office attendance, clear and effective communication regarding office attendance policies becomes crucial. Notably, 70% of respondents reported having a policy or guidance to drive intended office utilization patterns. However, while most policies specify the number of days employees are expected to be in the office, few specify the days of the week.
7. Shift towards Seat Sharing: An intriguing trend emerging from the survey is moving away from individual seat assignments toward a greater seat-sharing ratio. Approximately 66% of respondents indicated a transition to a more shared seating arrangement, with 52% planning for a 2-to-1 employee-to-seat ratio and 15% planning for up to a 3-to-1 ratio. Only a quarter of respondents intend to maintain a 1-to-1 balance or less.
8. Downsizing Trends: Within the past three years, 64% of technology and financial services firms reported reducing their real estate portfolios. Larger companies are driving this downsizing trend, as 68% of the largest companies in the survey plan to downsize, compared to 46% of all other respondents. The reasons cited for downsizing include the increase in hybrid work (87%), preexisting inefficiencies (31%), and cost reduction (27%).
9. Office Space Reduction among Small Companies: Notably, among the surveyed companies, only 36% of the smallest companies, those with less than 1,000 employees, plan to reduce their office space. It is worth mentioning that 88% of office-using businesses in the U.S. fall into this category.
The responses received from CBRE clients have given us reason to be optimistic, as we have observed an overall increase in activity at many of our properties. This uptick in activity is encouraging and indicates that current and prospective tenants are making decisive and longer-term commitments. Return-to-office work policies implemented by larger corporations are gradually making their way down to smaller businesses. This trickle-down effect suggests that the trend of requiring employees to return to the office will likely continue in the foreseeable future. However, it is important to acknowledge that there are still lingering market headwinds resulting from a “credit crunch.” Despite this, we remain hopeful that the positive office occupier trends we are witnessing will help alleviate the current pressures faced by the market.