Many of the biggest corporate employers plan to reduce the amount of office space they occupy over the next three years, underlining the changes set to reshape the commercial real estate market.
A Knight Frank poll of 350 real estate leaders at international firms found that half of the largest companies surveyed — those with more than 50,000 staff — expect to shrink their global portfolios, with most expecting to shrink by between 10% and 20%.
By contrast, smaller businesses — those with fewer than 10,000 employees — said they expect to grow, with 55% saying their office footprint would expand, the survey data show.
“Now that we are in a truly post-pandemic world, corporate decision-makers are ‘removing the blinkers’ and making clear decisions around their future corporate real estate strategy based on a broader array of business issues than just the pandemic,” Knight Frank's global head of occupier research Lee Elliott said.
The rise of hybrid working since the pandemic has heightened concerns about the amount of office space in cities around the world that may be obsolete. Cities including Los Angeles, San Francisco, and Boston have already seen landlords hand back the keys as vacancy rates soar amid anemic demand for all but the best new space.
Still, a relative paucity of construction in many markets means there’s a shortage of the best new space with top environmental credentials that can help large businesses meet their green targets and lure employees back to the office. That’s supporting rents for the best space even as demand craters for older, outdated buildings.
“A rise in both the functional and physical obsolescence of buildings will drive occupiers to higher quality, more sustainable and amenity-rich space, but the supply of this space is coming under increasing pressure in global markets,” Knight Frank global head of occupier strategy and solutions Tim Armstrong said.