Figuring out how much office space to lease may be more complicated than it’s ever been for occupiers. In addition to typical considerations like how many workers will be sitting at each desk, rising demand for meeting and collaborative areas, and the question of how much room should be set aside for future expansion, companies now have to seriously examine how work-from-home and hybrid schedules will affect their physical space. Besides workplace strategy consultants, many owners and operators are looking to technology to track how space is used to help their tenants make decisions about their needs. Though equations do exist, the process of making a decision about current office space needs isn’t a simple calculation. Office tenants have to weigh a variety of factors when it comes to predicting their office footprint.
A balancing act
Companies both large and small are still fine-tuning their office plans, as remote and hybrid work trends have become a permanent fixture in the workplace. While workplace plans can vary widely between tenants, a recent report from Basking found that globally, office workers are coming to the office fewer days a week, with one day a week jumping 14 percent and four to five days a week in the office plummeting 33 percent. Major tech companies like Twitter and Facebook, which lease millions of square feet across the country, have sent mixed signals about the workplace. Some have taken massive leases in the thick of the pandemic, and some are chopping a good portion of their space.
Just this week, Facebook confirmed it was canceling a 200,000-square-foot lease in Manhattan four years early. The news comes several months after the company signed the largest office lease of 2021 in Silicon Valley and the largest lease ever in Downtown Austin. Meanwhile, sectors like law and financial services have been reliably in-office and are some of the most active occupiers leasing.
Obie, a startup that provides insurance to real estate investors and landlords, is one of the companies looking to enhance their office footprint. The company currently has 80 employees and two offices—one in Chicago that serves as its main headquarters, and a smaller satellite office in Sarasota, Florida. About two dozen of Obie’s employees live in the Chicago area, while the rest live around the U.S. Half of the company’s employees work remotely full-time, but the company recently decided to expand its headquarters in Chicago.
After Obie opened its first physical office space in 2019, the plan was to continue to grow in Chicago, where they’d found a solid proptech niche in the city’s West Loop neighborhood. However, “COVID had other plans,” said Aaron Letzeiser, the Co-Founder & COO of Obie. Now, despite half of Obie’s employees working from home, the company hasn’t changed its plans to keep and expand its central Chicago office. “Even with a distributed workforce, we wanted a central office for the valuable purpose of training, meeting partners, a place where we could bring people—it was important to double down,” Letzeiser said.
Letzeiser said in making office space decisions, they calculated how many actual desks they would need (even if some employees only came in a couple days a week), and factored in enough meeting space for when the company holds all-team meetings or hosts customers. They also wanted to make sure they had room to grow. Obie’s new office is 5,500 square feet, a step up from its former space that had 3,000 square feet. The company was able to build out extra space not needed by a neighboring tenant, which gives them a chance over the next several months to think about what their office layout will need to look like going forward. Letzeiser said his company also has the option to pick up some flex space if needed at a WeWork location that occupies the first couple floors of the building.
Office space will continue to be a part of Obie’s plans going forward, and Letzeiser said he “wouldn’t be shocked” if they opened an office on the West Coast in the future. Having an office for employees, even if they’re only in the office a couple days a week, serves an important purpose as a central meeting place and a place to get work done for many occupiers like Obie. Building amenities and the surrounding neighborhood are also a big draw, and another factor for companies to consider when looking at office space. “After a couple years of people working from home, there’s a segment that doesn’t want to roll out of bed and in front of a computer,” Letzeiser said. “We wanted something more than just office space.”
Shrinking and rethinking
While it’s clear that for some industries in-office work is non-negotiable and for others hybrid and remote is the best fit, overall, companies are looking to reduce their office footprints. A July survey from the flexible workspace software company Robin found that 46 percent of companies surveyed in the U.S. were planning to shrink their office footprint over the next year, with 59 percent saying they would reduce their space by more than half.
Sarena Ehrlich, Northeast Engagement Lead for CBRE Americas Consulting, advises large occupiers on their workplace strategy. She listed a number of factors that occupiers are looking at right now outside of growth strategy and workstyle. Many companies look at company culture and whether they are office-first or “location agnostic,” and how workstyles are trending at the moment in the industry, given how competitive it is to find talent. “Understanding where the industry is headed with shifting workstyle expectations influences organizations in deciding how they strive to be positioned in the market,” Ehrlich said. A big shift since Covid is a rise in the number of occupiers keeping or expanding their office space despite having a hybrid or remote workforce in order to use their office to showcase their brand. In those cases, the office can be a way to help clients understand their brand and to “build stickiness,” said Ehrlich.
The pandemic has changed the office radically, but according to Ehrlich it hasn’t necessarily changed the way occupiers calculate space needs. She’s seen companies continue to rely on metrics of square footage per person and sharing ratios of employees per desk, but has also seen more of a focus on metrics typically used in retail, like utilization rates. Companies are increasingly looking at foot traffic in offices to determine how often areas of the office are used by employees when they are in the office and how long they are staying. A trend toward less space per person or workstation has been taking place, with that space now going toward collaboration spaces. CBRE is anticipating that collaborative space in an average office portfolio will grow to be 20 to 25 percent of the floorplan.
For some occupiers, a major factor in deciding how much space to lease is based on employee preferences. Yelp, the online ratings platform, made big news this summer when it announced it was shutting several of its offices in a shift to remote work. The company’s CEO said in a blog post that after polling staffers, it found that the vast majority of employees wanted to work remotely most or all of the time, while only 1 percent of employees were going into the office every day. Just this week, Oxford Properties Group President Michael Turner said during a panel at the WRLD CTY real estate conference that his company is rethinking its remote work model after getting pushback from the firm’s GenZ employees. Turner said the company’s youngest employees are the “least enamored” with working from home. “I’m sure that some will be able to do it,” Turner said of companies implementing permanent remote work models. “We won’t.”
The seismic shift in how and where people work over the last few years has led to a lot of critical thinking by both landlords and occupiers on what the workplace should look like. For tenants trying to figure out how much space they need for their employees, there are a myriad of factors to consider: growth strategy, company culture, employee workstyles, office utilization patterns, and industry trends, among others. More companies are starting to take a holistic approach to making office space decisions as they plan for both the present and the future, which still has a fair amount of uncertainty. Flex space will continue to play a role in workplace strategy for many occupiers, as they continue to decide the makeup of their footprint. Maybe the best place to start in determining office space needs is for occupiers to stay in frequent touch with their employees about what kind of work style they prefer, because as those in the office sector have learned over the last two years, there’s no one-size-fits-all approach to office space needs.