A realistic look at the future of office space

Office spaces have experienced a negative return for the past seven quarters, according to NCREIF data. This is hardly surprising, given the number of office closures during the pandemic and the current push for remote or hybrid work. Currently, nearly 17 percent of offices are vacant, and that number is expected to grow to up to 25 percent by 2026.

Still, there’s plenty to be excited about regarding office investments. The office remains a vital asset class, but what people want from offices has evolved in the wake of the pandemic.

University of Denver real estate student Micah DenBraber sat down with Walker & Dunlop to discuss his research on the Denver business environment and the broader themes that can also apply to the national office market.

The office is looking for the reason why

When companies sent workers home to mitigate the impact of the pandemic and keep business moving, many employees questioned why they needed to work in an office in the first place. Employees cited feeling more productive at home and enjoying the benefit of more free time that was once spent commuting. It was a hard sell for companies that chose to call their employees back to the office, leaving companies and office building owners struggling to find their real purpose.

Why should employees come to the office when work-from-home works just as well?

In response, we’re seeing two key threads. First is a values-driven approach. We’re creating a space where we can work, learn, and grow together. Work is a community that needs a central anchor.

The other takes a productivity standpoint. We’re working together in the office to keep everyone on the same page, working toward the same goals, and doing the most good.

What we’ve found is that having an office space as a top-down mandate doesn’t send a positive message. Instead, we’re now looking for ways to bring people together willingly and incentivize them to be a part of an office community.

To better understand this, Micah and his research partner, Colton Hiler, toured several Class A and Class AA office buildings in downtown Denver to see how they have reimagined the office.

“They reinvented the entire floor plan. They shrunk individual offices, ensured all offices has access to natural light, and reduced the number of workspaces according to capacity. Every common area felt like a living room to make the office feel like a second home. This helped the office stay competitive and draw on the networking benefits.”

There’s an increased emphasis on the “we” vs. “me” space in the office. Offices are transitioning away from the concept of a handful of luxury office spaces that only a select few can access. Instead, they’re favoring inclusive spaces where all employees feel cared for and at home.

Downtown real estate still bears value

Location continues to maintain its importance in selecting real estate, especially in the business environment. Despite challenges like congestion, rising costs, and even crime, stakeholders agree that simply having a presence in the heart of a city area puts companies in close contact with top-tier talent and infrastructural assets.

Speaking on Denver’s Central Business District, Micah and his team noted that physical proximity to other key institutions impacts a business’s success. One interviewee shared that they “can’t imagine being a big Denver law firm and not being Downtown. We need to be close to the courts.”

Accessibility and infrastructure are part of the appeal. Even businesses that don’t rely on foot traffic for revenue gain exposure when they have an obvious physical presence. This helps  generate new business and connects them with job applicants and other opportunities.

Businesses want their employees back in the office

Despite the push for remote work from employees, the office simply isn’t going anywhere. Business owners and operators want employees in the office, citing mentorship opportunities and social networking as the most significant benefits. Many industries have a learn-by-doing model that all but disappears with remote work.

Careers won’t progress to the degree people want them to if they’re not in the office. Visibility is key in staying top of mind and showcasing capabilities.

However, if executives want their lower-level and mid-level employees back in the office, they need to follow the same path. They’re setting the standard by not asking employees to do what they’re not willing to do themselves. This is a trend we’re seeing shift for the better, which is playing a role in bringing people back to the office.

The choice of office space will affect a business’s success

Specific office buildings may have an easier time finding tenants than others. Everything from location to layout has become increasingly strategic for business. It’s no longer a matter of having enough square footage or the right price. Rather, businesses are more discerning in choosing offices that allow flexibility, collaboration, and well-being.

Quality and age play a role in office occupancy. Not many businesses are pursuing Class C buildings (which account for a large portion of offices in Denver), which invites the potential for demolishing older buildings and starting fresh. Companies are interested in more conference rooms, huddle spaces, open floor plans, and fewer individual spaces. Natural light is also a top-tier amenity, something that older buildings typically don’t offer.

Without the right amenities and environment, businesses may struggle to get buy-in from employees and attract new candidates, which could lead to higher lease turnovers for building owners.

The office isn’t dead, but it does require a reinvention

Remote work is here to stay, but it’s not edging out the office completely. Business leaders and employees alike are exploring new ways to work, which presents a lucrative opportunity for investors.

With many office buildings failing to meet modern needs, now is a time to redevelop existing spaces. Walker & Dunlop works across the spectrum, from identifying opportunities to securing creative financing. Contact our team to learn how you can make the office a key part of your portfolio.

Download the white paper here. Sincere thank you to Micah Denbraber and Colton Hiler who worked on this white paper.