Nearly Half of Companies Will Cut Office Space Next Year: Survey
By Celia Young August 5, 2022 10:40 am
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Nearly half of companies plan to cut their office space in the next year, joining a growing number who have already done the same, according to a July survey from flexible workspace software provider Robin.
Robin’s survey of 250 U.S. companies found that 46 percent plan to reduce their office footprint over the next 12 months. Of those, 59 percent said they would shrink their space by more than half. To make matters worse, for the office market at least, a potential recession will likely encourage firms to start subletting their offices rather than fire workers, according to the survey.
“For most folks’ balance sheets, it’s people and real estate which are No. 1 and 2 on the budget,” said Zach Dunn, co-founder and vice president of customer experience at Robin. “You get a lot more out of people than real estate in the average company nowadays, and I think that people being prioritized during a recession is not inherently a bad thing.”
About 73 percent of firms that have most of their employees working in person said they would consider going hybrid before resorting to other cost-saving measures such as layoffs. Office brokers and lenders have seen remote work as a greater threat to the real estate market than a recession, but the survey’s findings show many companies will ax space first during an economic downturn.
While companies may start cutting back, hybrid work could also encourage firms to open satellite outposts for remote employees and prioritize efficient, smaller offices, Dunn said. Only 11 percent of the companies surveyed were using all of their space, and 45 percent were using only half or less than half of their current footprint.
“If you look at any one single office, it probably doesn’t need to be as sprawling as it was before to serve the same number of people,” Dunn said. “But as opposed to just shedding office space indiscriminately, people are being more deliberate about what they need that office to do for them in this new world.”
Plenty of firms have started cutting underutilized space or ditching plans to open new offices in recent months. Yelp announced in June that it would eliminate mandatory in-person work and closed 450,000 square feet of its offices in New York City, Washington, D.C., and Chicago. Amazon and Meta followed suit, announcing that each tech tycoon would slow its expansion in the Big Apple while reevaluating workplace strategy. Salesforce put more than 412,000 square feet of its San Francisco office on the sublease market in July while Twitter recently announced plans to close and downsize offices around the world, including trying to offload a full floor of its New York City outpost.
The news dashed the hope of commercial real estate brokers that the office market will return to normal, though they weren’t feeling very optimistic to begin with. The Real Estate Board of New York found that in July New York City brokers’ confidence about the market hit the lowest it’s been since 2020. Both commercial and residential brokers cited concerns over a recession, rising inflation and higher interest rates as the reasons for their worries.
Celia Young can be reached at cyoung@commercialobserver.com.
