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 50-60% 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 30-40% 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 or desk was not being used, the office still felt busy and about the right size. Helped perhaps, by assigning virtually every single private office or desk to an individual.

But today, private offices and desks are no longer the currency of the workplace. 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. (see our previous post on here).

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 / agile working were usually designed with most of the space allocated to private offices 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, agile 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 / agile 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.

If we look at working ratios (shared desks and work-settings) which is the norm for flexible workplaces, it compresses the space; 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 we're likely to see downsizing as companies address the preferred flexible ways of working and adopt more efficient footprints.

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.

Timing drives the real estate downsizing solution.

For companies’ mid-lease this requires the skill and experience of an expert real estate agent 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.

For those companies who are 12-24 months away from a lease end, there’s little time to be lost before 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 agent, architect and 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. Formalising your flexible working arrangements.

2. Defining and configuring your new workplace design.

3. Right sizing your real estate.

Contact us for a no obligation chat.