2024: the year of the Great Real Estate Downsizing?

Let’s look at the changing needs of real estate occupiers.

Office occupancy levels have, by most metrics, averaged around 50% of pre-pandemic levels for a year now (as at November 2023), despite so many high-profile return to office (RTO) initiatives highlighted by the media this year, they are simply not being complied with. There are variances of course, this is just the average – typically smaller to mid-size companies seeing slightly higher occupancy, and larger companies slightly lower.

It was usual for office occupancy, pre-pandemic, to be in the 45-55% range, on average – with an upper end peak of 65%. A very small minority of companies exceeded this.

So, in real terms it is fair to say that actual occupancy today is hovering around the 30% level, on average, and has been for the past year.

Pre-pandemic, it seemed to be acceptable to most that pretty much every other office, desk or cube was not being used, the office still felt busy and about the right size. Helped perhaps, by assigning virtually every single office, desk, or cube to an individual.

But today, offices, desks or cubes are no longer the currency of the office. Nor indeed is their use the measure of the level of office occupation anymore.

In a world where flexibility in location and timing of work has become the norm, the need for the office, and how it needs to be configured, has changed. I wrote about it here, nearly a couple of years ago now. https://www.crux-workplace.com/post/hybrid-working-how-why-it-changes-your-office-design

Essentially, we found that global studies reveal that employees are most likely to come to the office for activities where they need to meet work colleagues, or clients, for formal or informal interaction.

Existing offices, designed prior to pandemic and the implementation of hybrid working were usually designed with most of the space allocated to offices, cubicles, and workstations - suited to focus and general process work activities (that which we now know employees prefer to do - and do well - remotely). This would possibly use as much as 80% of the available traditional office space, with the remaining space designated as meeting rooms - the formal collaboration space.

Thinking it through this way, it’s clear to see the mismatch between the pre-pandemic traditional office (focus design), and the design of the future office, which needs to be designed with much greater emphasis on enabling employees to interact and support collaboration.

There is a clear methodology for creating workplaces that support hybrid and flexible working models and for downsizing real estate.

So far, we know that occupancy levels are about half of what they were before the pandemic, and this is manifested in empty, soulless offices which even the most enthusiastic office dweller is put off by.

Two actions to be taken at this point, reduce the amount of space, what’s the point of paying for space you don’t need, and secondly the space that is retained needs to be reconfigured to better suit the office’s new purpose.

What’s the impact on office space?

There are several factors to be considered here – firstly in the new hybrid environment, for most working arrangements, only a small number of desks are assigned to individuals, those who need or prefer to be in the office for a majority of the working week. Any remaining desks are likely to be shared at varying ratios within and across teams, depending on the needs of the team. Other ‘seats’ are found in the broader mix of shared, collaborative work settings such that on peak days everyone has somewhere to work from.

Sharing ratios of desks and other work-settings allow much higher utilization of spaces. In real terms, we have seen space reductions in the 20-60% range. Why is that such a big range? Because it depends on the starting point (existing office configuration), the types of activities performed, specialist equipment or processes, the level of in-person activities and interactions needed, personal preferences and the culture of the business.

For several countries in Europe, flexibility in timing and location of work have been around for many years; there’s been an organic shift to creating the new working arrangements, office design, and right sizing of the real estate – the pandemic accelerated the progression of this.

For the U.S the pandemic was a catalyst for change, breaking the traditional working practices and forcing changes all at once, with little time for people and real estate to adapt to new configurations to match the new ways of working.

Given this change in configuration we can look at existing benchmarks to see how this varies; consider the average space per person (some allocated by desk) in the US can be anywhere from 150 – 250SF.

Whereas, for the same functionality of business, space allocation in Europe is anywhere from 70-150SF.

If we look at working ratios (shared desks and work-settings) it compresses this more; let’s say in this example we’re allocating shared desking at a ratio of one desk to four people (because people are working from other locations), you can see the space allocation becomes more complex to benchmark.

So for US offices we're likely to see radical downsizing as companies address the preferred flexible ways of working and adopt more efficient footprints aligned to hybrid designed office spaces.

Here’s a before and after images of an office being redesigned for hybrid working (in this example a UK HQ). In this first illustration the client already has a modern design.

When we reviewed that for their needs best on hybrid working the reconfiguration results in a downsizing of 25%

With a range of new work-setting introduced to match the activities of employees when they came to the office.

Here's another example of a post pandemic project where our client found that hybrid working arrangements had been very successful for them. In this case we we able to fully engage the workforce in the process using our WEX Engagement Platform and accurately calculate their real space needs going forwards. This allowed their headquarters operation to downsize from 160,000SF to 50,000SF.

This shows how the 160,000SF was space planned pre-pandemic.

And this layout below shows the zonal concepts for the much reduced 50,000SF office.

Timing drives the real estate downsizing solution.

For companies’ mid-lease this requires the skill and experience of an expert broker to find a solution for you and your landlord to agree on downsizing your real estate. If an exit or release of unwanted space cannot be agreed, then low-cost actions like screening of the space not required and densifying the retained space will go a long way to improving the in-office experience.

See this post about low-cost interventions to densify https://www.crux-workplace.com/post/workplace-hack-densification

For those companies who are 12-24 months away from a lease end, there’s little time to be lost working through the methodology to formalize the new way of working, and confirm how much space you really need. An intentional plan needs to be established to confirm these, so that the brief for your broker, architect and general contractor is accurate.

Here’s the benefits of taking a structured approach:

• Right-sizing - in past examples the space reduction has been anything from 20-60% - think of the savings that would create!

• An engaged and productive workforce

• Reduction in distraction time for management

As leading workplace strategy specialists we’re well positioned to guide you through some or all these three steps:

1. Formalizing your flexible working arrangements.

2. Defining and configuring your new workplace design.

3. Right sizing your real estate.

Reach out to us for a no obligation chat.