Office Leasing: 2022 Trends and Predictions for Office Spaces

Office leasing trends have experienced a significant shift since the COVID-19 pandemic. This is due to office employees adapting to a work from home model in 2020 to early 2021 that caused the office market to face one of the highest tenant losses in commercial real estate. Today, the majority of workers are back in office or partially remote, positioning 2022 advantageously. Businesses and workers are returning to the office with newly implemented in-person yet flexible workspace environments.

office leasing

As the economy continues its recovery in 2022, and businesses conform to a new work style, those looking to lease or invest in office space may find some of the most unique and best deals come out of the office market this year.

Covered in this article:

 

Things to Know Before Investing in an Office for Lease

In a study conducted by Cushman & Wakefield, research anticipates a widespread return-to-office in 2022, with most employees returning by the first quarter of the year. Commercial real estate investors looking to acquire office property should hold several key factors in mind while considering potential investments or office leases and seeking to minimize risk:

  • Suburban office markets will likely recover more quickly than office property in central business districts.
  • A flight to quality and desirable amenities/locations may accelerate, due to growth in demand, occupancy, and asking rents.
  • Remote work will have a lasting impact on the demand for office space, with short- and long-term differences.

 

As PwC and the Urban Land Institute stated in the Emerging Trends in Real Estate 2022 report, “The pandemic created a massive shock that [may] transform office property demand.” New technologies allow many workers to accomplish their tasks remotely, i.e., in more suburban areas; some employees have still chosen to stay in urban markets for increased social and employment opportunities.

 

Watch: Understanding Office Investing in 2022

The Crexi Podcast covers how 2022 will change office acquisitions with David Wheeler and Anthony Trollope of Hartman Income REIT.

When asked the primary value drivers for employees to use physical office space, more than half of the commercial real estate owners surveyed by Emerging Trends placed significant emphasis on collaboration and the upholding of company culture.

The following are some key office trends for investors to track in 2022 and beyond.

 

Best office types in 2022

Before COVID-19, demand for central business district office space outpaced suburban office properties. Today we see the trend reversed: both companies seeking office space to lease and potential office investors will find better returns in the suburbs or smaller secondary and tertiary markets.

Office leasing trends

Per a study conducted by ULI, office types with the strongest buy and hold recommendations are:

  • Suburban office (74.7% of report respondents)
  • Central business district office (82.3% of report respondents)
  • Medical office (85.4% of report respondents)

 

What workers want  in office spaces in 2022

Emerging Trends notes that where talent lives is an essential factor affecting future office demand. While some employees have migrated away from gateway markets for fast-growing secondary office hotbeeds like Dallas, Miami, Houston, and Phoenix, others have chosen to stay in centralized cities while COVID-19 wanes.

In 2022, office demand isn’t necessarily an all-or-nothing situation. Core gateway office markets will always attract promising talent, with access to large skilled labor pools and plentiful options for the next job. Comparatively, secondary markets offer employees and businesses cheaper rents, a better quality of life, shorter commutes, and a lower cost of doing business.

 

Watch: Texas Benefitting from Dense Urban Relocation

The office amenities tenants desire are changing too. Functional technology and an emphasis on employee health and wellness are two of the highest priorities in a post-COVID world. Current and potential landlords must compete with other office buildings and home offices for tenants. Fulfilling office buildings with modern office space and highly desirable amenities will more strongly attract and retain businesses, which in turn want to provide these features to their employees.

There’s a tremendous opportunity to make an office property more desirable with new policies or building features, as only 13% of current office occupants believe that commercial real estate (CRE) owners are capable of meeting tenant needs in 2022.

 

office investing

 

Office Leasing Market Recovery

NAIOP expects a solid return to positive net office space absorption in 2022, with nearly 53.5 million square feet to be absorbed by the end of the year. While this forecast depends on continued economic growth and a declining pandemic, the data supports a positive outlook for office occupation in 2022.

Use rates ticked upward in Q4 2021, pointing to increased worker comfort levels surrounding working in-office. Office space investors in 2022 may see less competition due to fluctuating space demands from larger tenants. This creates opportunities for the buy-and-hold investor as well as the small tenant. While transaction volumes were down in 2020 and the beginning of 2021, office landlords are recording record high leasing numbers moving into 2022. Experienced office investors who focus on properties with credit tenants, long-term-remaining leases, and higher occupancies or smaller tenants looking to lease office space can hold their anticipation for more promising returns and opportunities as the economy continues recovering.

 

Interested to learn more about the Future of Work? Read Five Trends to Watch in the Future of Work according to Al Hartman.

 

 

 About the author:

Crexi integrates every facet of commercial real estate into a single digital ecosystem, empowering millions of CRE professionals with a robust marketplace, easy-to-use workflow management tools, and customizable data analytics to accelerate their success.

 

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