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FlexIndex May 2022 Update: Desk-Related KPIs at Almost the Highest Pre-Pandemic Levels

Work-from-home and the return to the office that never really happened will cut the office values by $500B, said a new report.  This big and scary number is backed by strong data and a few leading indicators. Kastle Systems in their latest issue of ‘Return to work barometer’ reports that 40% occupancy might well be the new normal. This level of occupancy is certainly not sustainable and companies will have to react. Other reports suggest that 60% of companies will only need 50-70% of their existing office space.

Are we experiencing the office apocalypse? Does the new normal involve the office and if so, how much office? Can Elon Musk bring back to the office Tesla’s executives? These are difficult questions that we can try to answer using data.

Return to Work that Never Happened

Kastle Back to Work Barometer” is showing a very consistent trend of occupancy levels floating around 40% with some areas showing higher occupancy rates than others. This alone may very well explain why the office values will be reduced by $500B in the next 10 years. Occupancy levels of 40% are not sustainable in any possible way. Companies will have to react to this trend and they will reduce their office footprint. More and more will adopt a flexible and hybrid way of working and so they will end up with a need for less space. Hybrid work is inevitable and occupancy levels of 40% are clearky showing why. Paying for office space that you’re barely using makes no financial sense.

Kastle Back to Work Barometer

If we combine the level of occupancy with the office demand index by VTS (VODI), things get even worse! The office demand is not recovering and in fact, is stabilizing at around 65% of the pre-pandemic levels. This is yet another leading indicator of what the future holds. Organizations of all sizes need office space but they need a lot less space.

VODI - May 2022

We can easily suggest that the underneath reason for this drop is that the office is really in less demand due to the mass adoption of hybrid work models. Despite all the benefits of returning to the office, the benefits of the various hybrid work models are so much bigger.

Let’s simplify the world and categorize the hybrid work models and organizations into 2 main types:

  • Office-centric Hybrid Organizations – have one or many HQs and the hybrid work is focused around these centers. Remote options are potentially available.
  • Remote-centric Hybrid Organizations – don’t have HQs and all employees are remote-first.

Both hybrid work models and all the 50 shades of hybrid in between them require a lot less office space. Both of these workplace strategies involve office space though. But what type of space that is?

Office-centric Hybrid

The office-first organizations will inevitably shrink their office footprint. It’s unjustifiable to maintain a 1:1 relationship between employees and desks when people are only coming to the office a few days a week. There’s no logical reason to do so. As a result, companies are massively adopting hot desking and office hoteling to organize a different working model that supports hybrid work. As a result, they can easily increase the ratio of employees to desks to 2:1 or more, depending on the actual hybrid work policy. For office-centric organizations, the office is the foundation of how they work, and how they build, maintain and develop the company culture.

What about the remote employees then? Do they need space? Some do, others don’t. First off, remote does not equal work-from-home. Let’s be clear on that. There are many young professionals or parents that can’t work from home for so many reasons. There are many social creatures that can’t be productive at home either. Of course, there are so many people that are best performing at home too. For remote employees, the office is a benefit. Similar to health care, gym membership, child-care services, or any other awesome benefit that the company provides. The best space options for remote employees are coworking spaces that can offer desks, meeting spaces, event spaces, and any other collaboration space teams might need. Furthermore, companies may adopt services like LiquidSpace, DeskPass, Desana, Tally, or any of the fantastic aggregated space services.

Remote-centric Hybrid

The remote-centric organizations will inevitably give up their leased office space if they ever had some. We believe that going forward, we will see more and more remote-first companies that thrive in the digital environment and their employees can work from anywhere. As discussed already, many of these people though will need space options to collaborate, grow as professionals, and do their best work. Remote <> work from home. As noted, coworking is the best option for many remote employees as it can provide all the space services that you may ever need on the most flexible terms – from daily passes to meeting spaces by the hour, to event spaces, and all in between. Not to mention the amazing professional communities that usually come with joining a coworking space. The office is a benefit for the remote teams out there. It’ll be one of the most important benefits going forward.

What’s the Future of the Office?

The future of the office is simple and one word can describe it – flexibility!

While the office space occupancy is floating around 40% and the office demand is barely returning to 60% of the pre-pandemic levels, the FlexIndex by OfficeRnD that tracks the recovery of the flex spaces has recovered to the pre-pandemic levels at 96% (4.8/5)! Even more, the Occupancy component is well above the levels we’ve seen in 2019!  It’s also worth mentioning that most of our Coworking and Flex Space customers are growing like never before and adding more and more locations.

FlexIndex May 2022

What does that mean? Flexibility is now needed and becoming highly adopted on both sides of the office chain – Tenants and Landlords.

The future of the office is flexible, hybrid, decentralized, and powered by technology.

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