The Future Of The Office In 8 Steps
Here are my predictions for the future of the office.
1. When leases runs out, every company will downsize (at the very least).
Remember: 77 of the Fortune 100 are hybrid. That’s from our RTO research you can read here. But…
- Hybrid for three days in the office/week = 40% unused office space
- Hybrid for two days = 60% unused space
Hybrid work is the admission by companies that they no longer need the amount of office space they hold.
2. Startups won’t bother with the office at all.
For new companies in the last decade, ~80% offered flexibility in where you work. In other words, most startups jump straight to a remote-first model. This is according to Nick Bloom sharing Scoop’s Flex Index data.
Therefore, new companies (or the companies that will become the big employers of the future) will grow without needing much office space.
3. AI will reduce the amount of desk jobs altogether.
By 2030, 30% of hours currently worked across the US economy could be automated. That’s according to McKinsey & Company.
If you have a 100-person team, that prediction means you’ll only need 70 people to deliver the same amount of work in a few years. Regardless of where those 100 people were, now 30 of them are guaranteed to never return to the office.
In other words, most people will work remotely. The robots won’t work from anywhere.
Let’s pause there to summarize.
- Hybrid work causes companies to reduce office space
- Startups default to remote work (no office space)
- Artificial intelligence reduces people working everywhere
4. There will be a major crash in commercial real estate.
As the entire world realizes it needs less office space than it has, demand drops while supply remains. That’s a simple recipe for a crash in the value of office space.
Take San Francisco, for example. Admittedly, this is the worst case city in America, but you simply cannot sustain these numbers.
Here is how office vacancy has changed in recent years:
- 4% of office space in San Francisco was empty in 2019
- 34% is of office space is empty now (late 2023)
That’s according to a CBRE report.
Here is how office occupancy has changed:
- If 100 people came into the office in 2019
- Just 44 people come into the office now (late 2023)
That’s according to Kastle Systems who tracks badge swipes into their clients’ offices in major cities. The pre-COVID number is the benchmark (set to 100), and then every number after is compared to 100.
In San Francisco, one-third of office space is empty. The other two-thirds is barely used.
5. Companies will demand shorter, more flexible leases.
- In 2019, the average US office lease term was 57 months
- In 2021, the average was 46 months
Those figures are according to Urban Land Institute. And although I can’t find updated figures for 2023, my guess is they continue to trend downward.
With offices emptying out, each new potential occupant can dictate terms. One of the terms they’ll ask for is shorter, more flexible leases. They’ll want short leases with the right to opt out, they’ll want flexible leases with the right to sublease to other companies.
This will make the office space market even more liquid than it is today.
6. Crappy offices will be knocked down & nice offices will continue to be used.
In Phoenix (for example), vacancy rates are at an all-time high (25%), yet the average lease price per square foot keeps going up.
That’s according to a Q3 2023 report from CBRE.
On the surface, that doesn’t make much sense. But in a conversation I had with Tim Kempton from CBRE, I learned about the nuance:
- Companies are abandoning class C spaces (the lower quality ones) which is causing increase vacancy
- Companies are still leasing the smaller amounts of class A spaces (the highest quality ones) which is causing the rates to go up
You can watch that interview below:
Crappy offices are emptying out. Nice offices are being leased.
7. Companies will have more satellite offices, fewer centralized offices.
They days of 2,000+ people commuting into one huge, centralized office headquarters are over. Most people are already on a hybrid schedule, others have moved away entirely (and work remotely), and other new hires started out remotely.
As remote work continues to grow, employees will naturally spread out across the country and world.
Rather than having one office with 2,000 people, companies might end up with 10 offices across major cities to offer 200 local, remote employees a space to work outside of the home. Those offices might need just 50-100 desks.
As prices crash on office space, companies will grab small, satellite offices for their local people to use.
8. Coworking spaces will scoop up cheap space and grow.
Remote work is great. Working from home isn’t always great.
That’s why individuals might want a coworking membership or companies might want to offer coworking stipends to their fully remote employees.
With an average monthly coworking space cost of $400, that doesn’t make sense for a lot of people. At $150-$200 (after a commercial real estate crash), it becomes a lot more appealing.
As corporate office space empties out, coworking spaces will move in at cheaper rates.
So, what is the “future of the office”?
Ironically, it’s a place for remote workers to focus for a few days per week or to work in small teams when necessary.
The office of old (with 2,000 of your closest coworkers) is already gone.
