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US Offices’ $1.1 Trillion Obsolescence Risk Heralds Long-Term Shrinkage Of The Physical Workplace

According to Randall Zisler, independent consultant and former head of real estate investment banking research at JLL and Goldman Sachs, 30% of US office buildings are at risk of becoming obsolete as tenants’ tastes change in the era of hybrid working. In total, this could lead to a massive $1.1 trillion of US office space becoming unoccupied for the long term. These changes are driven by demand for better space (with amenity-rich services) coinciding with a need for less space amongst businesses.

Market data from various sources shows overall office demand has not returned to pre-COVID levels. JLL finds that even though occupancy rates have strongly grown amongst buildings opened since 2015, vacancies in older buildings have ballooned. This trend is most pronounced in premium urban centres in Boston, Chicago, Los Angeles, New York, Philadelphia and San Francisco. Similar trends have been identified by the UK Valuation Office Agency, which recently released a report outlining how office space in England fell by 18 million square feet since the start of the pandemic.

Strategic priorities for offices have drastically shifted. Prior to COVID, the mark of payback on an office lease was maximizing its occupancy and providing an environment that minimized workplace frictions. Now the focus is changing to provide staff with facilities and digital tools to enable collaboration so that time spent on-site is not wasted. With less physical space needed, and staff spending less time on-site, it is crucial that collaboration is enabled and not hampered by the office environment.

These trends are driving demand for software that enables collaboration between staff that are both on-site and working remotely, through integrations with calendar and audio-conferencing equipment. There is also experimentation with software to prompt users to visit the office based on their co-workers reserving a space ahead of time. This notification-based scheduling is something being pioneered by software vendors such as Kadence. Moreover, people-counting sensors from firms such as Density, VergeSense and Yanzi are being used to measure different workplace usage trends, and regularly iterate the ratio of private and collaborative space provided in high-end offices, to optimize the occupier experience. Ultimately all of these functionalities are designed to reduce the amount of energy it takes to decide whether to work from the office or home.

To find out more about the emerging and dynamic workplace management software market, look out for our upcoming report Smart Innovators: Hybrid Workplace Software, set to be published in April 2022.

SB US Offices 1.1 Trillion Obsolescence Risk Heralds Long Term Shrinkage Of The Physical Workplace

Ibrahim Yate

Senior Analyst, Verdantix
Verdantix
Verdantix

Ibrahim is a Senior Analyst in the Verdantix Smart Buildings practice, which he joined in 2016. His current agenda covers innovation in software and hardware solutions for space management, workplace management, and workplace systems integration. Ibrahim holds an MSc from Imperial College London and MA from Cambridge University.