The future of the office space in the era of hybrid working: Navigating the new norm

What are the current global trends shaping the office market performance, and what adaptations in the workspace are becoming imperative for both individuals and investors? Is hybrid working here to stay?

Moderated by our chief economist, Simon Rubinsohn, our recent webinar examined insights from the RICS Q1 2024 Global Commercial Property Monitor, with a focus on the office sector. Our panel of experts reflected on the evolving landscape of office spaces in the era of hybrid working.

Market trends and office occupancy

Three out of the four world regions have, since mid-2022, seen a consistent negative trend in office occupied demand. That has been the case across Asia Pacific, the Americas and Europe, says Tarrant Parsons, senior economist, RICS.

The latest figures are not quite as downbeat but, nevertheless, continue to highlight the ongoing challenge facing the sector. Notably, the Middle East and Africa, particularly Saudi Arabia and the UAE, present a more resilient outlook with robust tenant demand, adds Tarrant.

Catherine He, head of research at Colliers, emphasises the high office utilisation rates in APAC, specifically in cities like Singapore, Hong Kong, Tokyo and Seoul, fuelled by efficient transport systems.

In northern Europe, individuals tend to work from home, in part, because they have good internet connectivity. In southern parts of the continent where it is warmer, people tend to go to the office for chilled air. Generally, there is a big difference from country to country, says Jens Böhnlein MRICS, global head of asset management and sustainability director, Commerz Real AG.

Meanwhile, the US office sector is struggling and vacancies are quite high, adds Katrina Kostic Samen, vice chair and head of workplace studio, North America, Savills.

Asia is mostly back to full time working in the office. Katrina suggests that generally as you move across to Europe, Paris is back four days a week and the UK for three and four days a week. It drops off dramatically in the US, concludes Katrina.

Rental levels, vacancy and dynamics

Colm Lauder, principal at Lingard Capital Advisers, discusses how, despite record vacancy rates, headline office rental levels have remained relatively stable in most OECD cities, including the US, London and Paris, with marginal growth observed (less than 2%). However, this contrast of growing rents amidst elevated vacancies seems an intriguing anomaly in office market dynamics.

In Singapore, Catherine highlights that hybrid work is here to stay because of government policy. Government has stated that employees have the right to request flexible working patterns and employers can only refuse this on reasonable grounds. This might have some repercussions on the office market with regards to office values.

Flexibility is an important factor and potentially comes at a premium cost, but not necessarily if it is considered from the beginning or readapt the asset, says Katrina. The concept of multi-use, multi-community, multi-engagement is incredibly important.

Evolution of the office space

The concept of talking about the return to the office is not the right conversation. It is about effective leadership and collaboration between the landlord and the tenant. And really, it should always have been people-centric, says Katrina.

The office now is different from what it was three, five or ten years ago. And the components of those headline rental figures are also different, says Colm.

We have had a major sustainability agenda feeding through, which has been setting the scene for occupier and tenant requirements. Certain tenants will only take particular types of buildings, particularly in the tech sector. The major listed businesses will have ESG criteria set by boards and that must feed into their office occupancy. There are also still a significant amount of tenants who cannot afford to adapt to some of these requirements, Colm emphasises.

People want to have a great office space. If you take Paris, London, Berlin, Dublin – all the major cities are competing for the same talent. The office is only a small part of the offering, says Jens.

The role of AI

AI can help in tasks, but it cannot replace the entire job and you still need human input to check and verify what the AI is doing, says Catherine.

Anecdotally, in Singapore, some tech companies that are thinking of downsizing are keeping their spaces because of AI.

AI is not a threat generally to the commercial property requirements, adds Colm. It could enhance the tenant and occupier experience and how we engage and utilise the space around us.

The future of the office

In the future, we might see office space shifting from being the responsibility of the chief financial officer to the chief human resource officer, because it is going to be an important asset that employers need to get the right to bring top talent on board. If you pick up that conversation, you will come to a completely different solution on how the office in the future may look, says Jens.

If office space is only thought of as little boxes for the next ten years, that is not the way to be successful. I believe the office has to be more than just sheltering employees and offering chilled or warm air. It must be a place where we can be more productive, Jens concludes.

An overarching theme from the RICS Q1 2024 Global Commercial Property Monitor is the continuing polarisation of office real estate between best in class and the rest. With hybrid working redefining work patterns and an increasing focus on employee wellbeing and sustainability, is the traditional office environment losing its appeal? Hybrid working presents challenges and opportunities for investors, landlords, and occupiers alike. This shift is more than just about redesigning physical spaces; it represents a complex mix of investment decisions, changing work cultures and evolving tenant expectations. Our expert panel discusses the impact on commercial real estate values, tenant demands, and the strategic adjustments required by landlords and investors.