With perhaps half of all employees working from home, California offices are sparsely populated these days.
As a result, vacancies are rising, new leases are dropping and some companies are putting some of their unused square footage on the market for sublease, commercial real estate brokerage CBRE reported. Businesses with leases about to expire are signing short-term renewals only, putting bigger real estate decisions on hold.
And office occupancy rates plummeted. For example, office occupancy in Southern California dropped 6.2 million square feet since the start of the year, equivalent to emptying out the 103-story Empire State Building two times.
In San Francisco and the neighboring peninsula communities, occupancy fell by almost 4.2 million square feet, which equals 1 ½ Empire State Buildings.
What’s next for office landlords? Will their glass towers soon go condo?
Not quite, says Lew Horne, CBRE’s president for Southern California, Arizona and Hawaii.
Horne doesn’t believe the pandemic will spell “the end of the office as we know it,” he wrote last summer in his blog. But he doesn’t expect a rush back to the office either — at least not in the near term. Nor does he think things will be the same once a vaccine is finally deployed and life gets back to normal.
Horne recently shared his thoughts about the future of the office after the pandemic ends. His comments have been edited for space.
Q: With vacancies rising and more employees working from home, do we need so much office space? Can’t we just meet over Zoom?
A: I think at first, when everybody was working at home, there was this euphoria of, “Hey, I don’t have to commute. This looks great. I’ve got this new relationship with my boss, and Zoom is fantastic.”
But I think what’s gone on over the last eight months is people have recognized, I miss my culture. I miss the collaborative nature of my company. If I’m an aspiring young professional and working up in the organization, I miss my mentor. I miss, as they said in “Hamilton,” being in the room where the action is.
You can’t get that on Zoom. … You can’t build a culture around a Zoom call. You need that physical connection with people. When you’re on Zoom, you’re on. And then when you click off, you’re off. It’s on to the next call.
I think the office is going to be probably stronger because of this. I think there’s going to be changes in the interior architectural design. I think there’s going to be changes in medical protocols and how we function in an office.
Q: What are some of the design changes?
A: What we did eight years ago (at CBRE’s downtown Los Angeles office), is create a system called “free address,” where when I’m not in that seat, somebody else has the ability to use it. Now, there’ll be a cleaning protocol when I leave and it’ll all be naturally be cleaned up.
Sometimes I’m going to be out on the floor in an open area, sometimes I’m going to be in an enclosed office. Sometimes I might be in a small, enclosed cubicle.
… I still think that the office is critical to your culture. To build a company without a meeting place or a place that you can identify as your brand and your values that creates your culture, I just don’t think that changes.
Q: When will employees return to the office?
A: Until there’s that vaccine, and they feel that their employees are safe, they’re saying to their employee that this is your option.
So what we’re seeing is 15%, maybe to 20-25% max, coming back into the office because there still are concerns about how do I get up and down that elevator? Do I allow that car valet to take my car? And do I feel comfortable in those environments?
What we don’t have in Southern California is the subway issue. If you look at cities in the country like Boston or New York or San Francisco, the primary mode of transportation to and from the office building is some sort of mass transit. It’s really the first time in my career where I can say (Southern California’s) lack of mass transit has been an advantage.
Q: I’ve read San Francisco has higher vacancy and sublease rates than in Southern California. What’s the difference between the SoCal market and the Bay Area?
A: In the Bay Area, you’ve got two things going on that are different.
The first thing is you’ve got a mass transit issue. And right now, whether you’re in Boston, New York or San Francisco, that mass transit issue — getting onto the BART or the subway or mass transit — we just haven’t figured that out yet. That’s going to be a choke point.
I think the other part is you’ve got large concentrations of tech. So when generally a couple of tech firms make a strategic decision around occupancy, others will follow.
And you typically got an employee base (in the Bay Area) that can do more work from home.
But I promise you, the moment that that vaccine hits — you get into the second or third quarter of next year — you’re going to start to see those firms pulling people back in. No question about that.
LEW HORNE
- Title: Advisory Services President of the Pacific Southwest Division
- Organization: CBRE Group Inc.
- Residence: Pasadena
- Education: Marshall School of Business, USC
- Previous jobs: CBRE industrial broker in the San Fernando Valley and sales professional for IBM
FIVE FACTS ABOUT LEW HORNE
- Favorite hobby: Woodworking
- Favorite exercise: Long-distance cycling
- Greatest passion: Solving L.A. homelessness
- Active in Big Brothers Big Sisters Foundation
- Still married to his college sweetheart
