The Office Operating Model That Converts Uncertainty Into Occupancy

The office market has spent the better part of four years recovering. Occupancy is stabilizing in gateway markets. Leasing activity is showing signs of life. And, across the industry, a quiet consensus is forming that the worst is behind us.

That consensus may be premature. Not because demand is about to collapse again, but because the industry is preparing for the wrong kind of downturn.

The next contraction, when it arrives, will not expose a demand problem. It will expose a rigidity problem.

Occupiers are not exiting the market; they are entering it differently. Decision cycles have slowed. Lease durations are compressing. Chief financial officers who would have signed a 10-year commitment in 2019 are now stress-testing every long-term obligation on the balance sheet. 

That is rational portfolio management in a volatile macro environment, not a failure of conviction. 

When interest rates shift, headcount fluctuates and geopolitical disruption ripples through business plans, then flexibility becomes a requirement rather than a preference. More than half of corporate real estate executives surveyed by CBRE say their tenants are actively seeking shorter lease terms for new or renewed space. The average new lease size has already fallen 32 percent from pre-pandemic levels. Nearly half of senior corporate real estate leaders identify flexibility of space and lease terms as the single biggest gap between what the market is offering and what they actually need.

The buildings not built for this reality carry a specific and underpriced risk: duration risk. A portfolio structured entirely around seven- to 10-year leases performs beautifully in a stable cycle. In a volatile one, it becomes a liability. When occupiers hesitate, and hesitation spreads quickly in contractions, static assets have no mechanism to absorb the pressure. The vacancy exposure that follows is self-inflicted, baked into the building’s architecture long before the downturn arrived.

The industry has largely misread what separates resilient buildings from vulnerable ones, and that misreading matters now more than ever. The conversation has focused on flex space as the answer: shorter suites, managed space, month-to-month options. Those are useful products. But flex terms alone are not what make a building resilient. They are a byproduct of something more fundamental. 

The buildings that maintain occupancy through contraction are those built around experience as an operating model. They have the infrastructure to understand how tenants are actually using space. They can respond to changing headcount with programming adjustments, service changes, and space reconfigurations, not just a different lease structure. They have built a relationship with the occupier that survives a renewal decision because the tenant’s connection to the building runs deeper than the square footage they committed to.

That is the operating model that converts uncertainty into occupancy. Flexible lease terms are one expression of it. But a building with short-term suites and no underlying experience infrastructure has not solved the problem. It has repackaged it.

The industry has trained itself to optimize for rent premiums. Top-of-market rents and headline deals still matter. But, in a contraction, the buildings that outperform will not necessarily be the ones that commanded the highest rents on the way up. They will be the ones who stayed leased. 

The data already points in this direction: Effective rents for top-tier office buildings rose 2.4 percent since 2023, while lower-tier assets fell 1.2 percent over the same period, according to CBRE. That divergence will accelerate in a downturn. The share of corporate portfolios where flexible space accounts for more than 10 percent of total holdings nearly doubled in a single year, reflecting how quickly occupier behavior is shifting. 

The buildings that capture that demand are not winning on lease terms alone. They are winning because they have built the operational capability to respond to what occupiers actually need, in real time, across an entire relationship.

There is a version of the next few years in which the office market recovers gradually, experience-led operations become table stakes, and the landlords who built that infrastructure early find themselves with structurally healthier portfolios. There is also a version in which the next macro shock arrives before that shift happens, and the gap between adaptive and static assets widens faster than anyone expects. Both versions are plausible. The difference between them is almost entirely a function of the choices being made right now.

Static assets do not fail because demand disappears. They fail because they cannot bend. The buildings that outperform the next cycle will be those with operational infrastructure to absorb volatility, convert hesitation into occupancy, and sustain tenant relationships through conditions the lease alone cannot withstand. 

The next downturn will not forgive rigidity. The question is how many portfolios are still entirely organized around it.

Chase Garbarino is the co-founder and CEO of tenant experience platform HqO.