Landlords beware: Office tenants procrastinating on hybrid planning

A majority of office-using businesses are yet to decide what their hybrid future should look like.

Hybrid work is underway in 72 percent of office-based companies and 65 percent said they don’t anticipate having any one dominant work location in the future, according to a new survey from Ernst & Young.

A majority of business leaders believe a hybrid work model is here to stay, but only 40 percent of the survey’s respondents said they have taken steps to establish a plan for its future.

“There’s a lot of big decisions to be made, and I think a lot of people are having a hard time making those decisions,” said Mark Grinis, EY’s global real estate, hospitality & construction leader. “The data shows that they’re taking a wait-and-see attitude.”

The survey from the professional services firm, also known as EY, involved more than 500 business leaders from across the country to launch its Future Workplace Index.

The reluctance to commit to widespread office returns comes as major U.S. markets struggle to emerge from depressed leasing activity.

Manhattan’s pandemic-powered office slump reduced net absorption in the past 18 months to negative 36.6 million square feet, or about the size of the office market in Downtown Los Angeles, according to Colliers International. The borough’s leasing activities finally rebounded in the third quarter, indicating that some companies finally started to make plans for the future.

The same period saw a record rate of workers returning to the office. An average of 36 percent of the workforce returned to offices in the 10 top U.S. office markets in the first week of October, according to access-card data from Kastle Systems.

New York City saw a promising rise of almost 10 percent in employees’ returning in September, reaching 30 percent of its workforce back in the office. But the figure pales in comparison to the 62 percent predicted by employers who responded to a survey for Partnership for New York City.

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According to the EY survey, 87 percent of business leaders said the pandemic has changed the role of the office for their organizations. Of particular concern to office landlords, 57 percent said productivity has surpassed pre-Covid levels. On top of that, 72 percent said their corporate culture has improved while operating in a hybrid work model.

To make the office experience superior to a home environment so that employees want to come to their offices, landlords “need to recognize they are in more of a hospitality business than a four-white-wall business,” Grinis said.

Some commercial landlords appear to have already taken note of how to lure tenants back amid the market’s lowest points. The New York Times reported in June that office buildings were rolling out a previously unseen range of amenities.

In addition to ventilation systems, Zoom-friendly conference rooms and flexible seating for variable work schedules, some buildings debuted amenities focused on social and cultural attractions, the Times reported.