September 19, 2024 • 38 mins
Julie Whelan and the CBRE research team delivered the updated 2024 edition of the US Office Occupier Sentiment Survey. This marks the third consecutive year we’ve had Julie on to share the findings and some of the insights behind the numbers.
For the first time since Covid, according to Julie, the survey feels somewhat ‘normal,’ reflecting a significant shift in sentiment regarding organizations ‘shedding’ space. While the past few years focused on downsizing and adapting to hybrid work models, companies are now reaching a "steady state" where office space utilization is stabilizing, and some organizations are even considering expanding their space.
Please join me in welcoming Julie Whelan back to Work 20XX.
We covered a range of topics, including the difference between measuring efficiency vs. effectiveness. We reviewed the latest on technology investments, from video conferencing and space scheduling to occupancy sensors and more. We also explored some innovative ways companies are using flexible and shared spaces to accommodate peak days when most employees are in the office, while still maintaining ‘vibrancy’ on days with fewer people present.
With New York’s Local Law 97 coming into play, we discussed the role of sustainability, net-zero goals, office conversions, and the capital markets adjustments that will reset a number of properties that no longer meet today’s standards.
These topics and more make for another highly engaging conversation with Julie, who has her finger on the pulse of the office market from a national perspective.
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(00:00):
So, you ready to go?
I am.
Okay, cool.
So I will
count us down.
Three.
Two.
One.
Hey, welcome backeverybody. Jeff Frick here.
Coming to youfrom the home studio
for another episodeof Work 20XX.
It's late summer.
Labor Day is just around the corner,
so it's our annual checkin with Julie Whelan from CBRE
(00:23):
to get their, their update on the
their Occupier Sentiment Survey.
So welcoming in
through the magic of the internetall the way from Boston.
She's Julie Whelan,
the Global Head of Occupier Thought Leadership from CBRE
Julie, greatto see you.
Thanks for having me, Jeff.
It's a great tradition to behere with you every year.
It is. I went and I checkedbefore we got on today.
We got on in June.
(00:43):
And you know, June in 2022
was a little bitof a scary situation
kind of comingout of the of Covid,
which is hard to imagine
that whole thingeven happened.
2023 we talked a lot about
kind of what'sgoing to make
buildings and neighborhoods sustainable.
So what's kind of the theme,
for 2024, the,
America's Occupier Sentiment Survey,
which everybodycan get online
(01:04):
31 pages of chartsand graphs and data
and somegreat analysis.
So what,
what's the big change for
or the theme maybe, for 2024?
Well, for the first timewriting this survey,
I feel likesince the pandemic,
we are actually writing itin a more normal voice.
It feels like we're in a more normal market
in a more normal environment,much more stable.
(01:27):
And I'd say that that was justa huge sentiment shift.
And then what was interesting wasas we were analyzing the data
and it was coming in, we were also getting,
a hold of Q2, real numbersof what was happening
in the office market.
And it actually helped us tounderstand that we feel that
we're at a real inflectionpoint in the market.
(01:47):
And the reason thatI feel that way
is because the sentimentin this survey
really showedthat there's a shift
in occupier behaviorright now.
The past four years,
it has been all about downsizing,
all about contracting,
all about letting go of space that you didn't need
in the face of the structuralchange of hybrid work.
And now we are at a point
(02:08):
where I think a lot of that has been done.
There's a lot more understanding
of what officeutilization is today
and is going to be
and therefore occupiers are sitting back and saying
maybe we shouldn'tget rid of space anymore,
and maybe in some cases
we should even start to expand.
And so that was a marked shiftin sentiment this year
(02:29):
that by the way
we see coming throughin the numbers.
Q2 was the first quarterin quite a while
that we saw positive net absorptionin the national office market.
Wow. So a couple thingsjumped out to me.
One, you said
or in the survey says
64% of the people say we're in a steady state,
which again, to what,you know,
reinforcing what you just said,that was not the case.
(02:50):
You know, trying to come out of Covid
and figure outwhat we were doing.
And it jives with Nick Bloom'sresearch over at Stanford
and work from home policies,
which he likes to say‘it's flat as a pancake’
and has been nowfor over a year in terms of,
you know, how many days a weekpeople are working,
there still seems to be this little fight.
You, last time we talked,you said
they gave up on Friday.
Fridays are gone,
but there still seems to bea little fight
(03:11):
on that third day of the week
where employers are looking for
people to come in three days a week
people are coming incloser to two.
So we still have this little,
a bit of a battle for that last,that last little bit.
But what's interesting too
before we talked about return to office mandates
and I probably
I promise I won't use that wordeven though I just did.
But your point was,
(03:32):
there's a difference between a policy
and there's a differencebetween enforcement.
And we're still seeing
this huge gap between what people want
and what’s statedin the form of a policy,
and then what they're actuallytracking and what they're,
punishing or taking action against.
Yeah. So there's a lot there.
But let's start with thewhole return to office.
(03:52):
I agree, we don't want to say that anymore.
And I think that was also
a shift that we startedto see last year.
But it's certainly,
a very clear onethis year
that we don't talk about that anymore.
And part of that reason is because
I think for most cases,we are at steady state.
Even if that steady stateisn’t exactly what
the leadershipin that organization wants.
(04:14):
And I think the reason theyare just sort of overlooking
maybe some of what is not happening
that they want to happen
is because there reallyisn't a huge chasm
between what employees are doing and what leaders want.
If employees were coming inone day a week
and employers wantedfour days a week, then yes,
we would still be talkingabout this return to office.
(04:35):
But I would argue
we're somewhere aroundhalf a day to a day
between the differenceof what employers want
and what employees are doing.
So in many cases,
organizations are just sayingwe're largely at a steady state.
We might try to pusha little bit more,
but it's not going to makea real difference
in our portfolio.
That being said,
there is still about a third
(04:56):
that are tryingto push harder,
but what we are very clearabout saying right now
is that the easy workhas been done.
Most organizations have set a policy.
Many are eventracking that policy.
If the policy is notbeing followed,
we believe that there actually has to be
much more of a deeper diagnostic
done in that organization
(05:16):
that helps them understand
what isthat barrier
that is stopping peoplefrom coming in more.
Is it a culture thing?
Is it the KPI thing?
Is it a locationof the office thing?
But in order to understand that,
you have to talkto your people.
You have to surveyyour people.
You have to really understand
what is drivingtheir behavior
(05:37):
in order to unlock different behavior.
Right.
Another thing that jumps out of the survey
is the difference between
big companiesand little companies.
And I think in the surveyyou define
big companies as 10,000 employees or over
and little companies as athousand employees or less.
And actually in the bigcompanies, they're still
they're still lookingat downsizing, potentially.
They're still making theadjustments at a higher rate.
(05:59):
On the downside,
where like 80%,I think of the small companies
are anticipatinggrowing their demand.
And it feels like
that’s more of a reflectionof just growing the business
than necessarilychanging the policies.
But a real split betweenBigCo’s and LittleCo’s.
Yeah. You made me chucklewhen you said that.
Because I used to read a story book to my kids
called Fredand Ted,
(06:19):
and one of them was bigand one of them was small.
I don't know which it was.Let's call them Fred and Ted.
So yes, I will say thatthere is absolutely a divide
between what the largeorganizations are doing
and what the smallerones are doing.
But let's not forget that
that wasn’t a lot differentbefore the pandemic.
What we saw evenbefore the pandemic,
in between the sort of financial crisis and the pandemic,
(06:41):
was that the largest organizations,
especially financial services companies,
were doing everythingthat they could
to really make sure thattheir portfolio was efficient.
I wouldn't even say that they wereso worried about it being effective,
because at that point
there was just a status quoof people coming in,
but it was very muchabout efficiency.
But during that time,
(07:01):
the tech companieswere growing, so
they were able to kind of negate what was happening
with the financial services companies.
And there was still thereforedecreasing vacancy
and increasing occupancyin buildings.
Now, today, that downsizing remains true,
but it remains true
I'd say more so, probably around
the tech companiesthat had
gathered alot of space
(07:22):
and are now adjustingto a new way of work.
But in many instances,the tech companies
had let go of a lot of their space.
Now they're starting to thinkthat they do want
more of an office presence,
and therefore they're goingthe other direction.
And tech companiesthemselves
are actually taking a larger share of leasing
than we have seenin the last four years.
Then you have the financialservices companies that,
(07:44):
yes, in some casesthey're downsizing,
depending on how big their portfolio is
and how fast they've been ableto acclimate to a new normal.
But in many cases,they were already
so small and efficient
that now that they want people backmore than the average company,
they actually are realizing
they have to provide moreof an employee experience.
So maybe need better spaceor bigger space.
(08:07):
So what we're seeingis definitely
a push and pull right now.
And there isn't so muchof a pull away from space
as there was.
So that has moderated
and we are seeing more ofa push towards more space.
Now smaller companies also
that maybe got rid of their space altogether
before thepandemic
and or during the pandemic
and just went home
or are now expanding
(08:29):
because the economic cycle is still pretty strong.
They're actually telling usthat they need more space.
And so as a result, now
you do have these two endsof the spectrum
that are ending somewhere in the middle.
Now, we're not saying thatthat means
that vacancyis all over gonna
All of a suddengoing to start to decrease,
because we actually do expect that
vacancy will continue to increaseover the next year or so.
(08:50):
But we are much closer to the end of this down cycle, we think
than we are from the beginning of it.
Yeah.
Well, let's talk about efficiency versus effectiveness and
Those are twogreat words
we’ll keep awayfrom productivity.
That one's a little bit harderto measure, but
one of the key findings,I think number two is
said that 73% believethat workplaces are effective,
(09:10):
but only 46% are measuringwhether it's effective.
And those that measure it
are actually not thinking that it'sas effective as it can be.
Also, another data point waskind of the ratio of people to seats
to chairs in the building.
And that's changing.
You know, people are going to more
shared spaces, and it'snot this 1:1 relationship.
(09:32):
So it still seems there's this like
there’s a lag of kind of thesetraditional measures of efficiency.
And we're really not movingas quickly as one might hope
in effectiveness.
Phil Kirschner from McKinseyhas this great line.
Rather than writing a bookabout the building,
write a book about how the building gets a chapter
in the successstory of the company.
(09:53):
And it's a real different way
to think about the effectiveness,
the effectiveness of the spacearound a particular,
you know, activityor objective or goal.
So then you can investand make it better
for that, that thing.
How do you see,
you know,kind of this slow shift
in measuring effectivenessand workplace productivity
and HR measures versus,
you know, butts in seats and,
(10:13):
and efficiency and how manycubes are spaced, are taken
Yes. Well, you know,real estate professionals were
are not sociologists. Right.
So they don't reallyalways understand people.
And that's not the speakthat they've had to speak in.
They have always really focused on
efficiency of portfolioswhich was measured
by square feet per seat,square feet per person.
(10:36):
How often people were coming in.
So by far and large,
that is how workplaceeffectiveness is measured.
And that’s how most organizationsare measuring it
that are measuring space right now.
However, effectiveness means something very different
than people being in seats,
because what we know is that even before the pandemic,
people werenot engaged.
(10:56):
They were not alwayshappy at work,
and they were not, thereforealways effective at work.
But when you thinkabout the word effectiveness,
even when we're havingour annual reviews
or our mid-year reviews
or our monthly one on ones with our managers,
how do they know thatwe're being effective?
Effective against what?
Well, there's goals that we have.
There are clear goalsthat tell us if we're
(11:19):
and we have KPIs against ifwe're achieving those goals.
I think the big piece of the officethat's missing right now
is that that goal in the pasthas been just get people in,
and now that goalis shifting.
But we don't have a new goal.
That's very clear about the why
we have to bein the office.
So the policiesare stated
(11:40):
and that gives us the number of dayswe're supposed to be in.
And therefore if we can measure against that,
then we're sayingwe're being effective.
However, the real goalis interpersonal connections
and getting people to work together
and driving the culture of organizations.
And until we can really beginto measure around that,
then we're really notgoing to know
(12:01):
if our workplacesare effective.
There are somein this survey
that did tell us that theyare measuring based on
employee engagementor attrition and retention,
and even a few that say
that they'remeasuring our productivity.
But I would argue thatthose are probably companies
where it's very clear cut
on how to measurefor productivity.
Many knowledge workers.
(12:22):
That's a very, very difficult nut to crack.
Right? Right.
And they're using thingslike retention.
And you know, there'ssome other HR metrics
and engagementthat that are out there.
So shifting gearsa little bit about investment,
I was really surprised to see
in the techinvestment category
that video conferencingwas still at the top of the list
number one at like 82%.
(12:43):
But then afterwardsyou're seeing some of the stuff
that's more supportive of hybrid
things like space bookingI think was 64%.
What was surprisingly low to me is occupancy sensors
and some of these thingsthat we've talked about before
that will give additional insight
beyond badge swipesas to how
actual spaces are being used.
And, you know,are they overused
(13:03):
or are they under utilized.
And, you know, if you kind of map that with
that with kind of activitybased spaces and more variance
within the spaces within
either the company space itselfor within the building,
a lot of focus there.
I mean, video conferencingstill, number one,
that's really surprises me.
I mean, we all have phones,
kids a lot younger than you and I
(13:24):
probably take most of the video conferences
on their phonesanyway.
How do you seekind of this
this investment in the sensors
to get the better datato really know
what's going on insideyour four walls?
Yeah.
Well, so videoconferencing
is an interesting one.
First, we have to realizethat there are
hundreds of millions of square feetthat are occupied.
So outfitting all of thatwith technology
(13:45):
to suit this new world of workis going to take some time.
And I think that these survey results
show us thatthat time is still unfolding.
Additionally, I thinkthat video conferencing is,
is increasingin terms of sophistication.
And so I think that there'san element of that
that will continueto be an ongoing trend
within organizationsas they look
(14:07):
to not only give videoconferencing,
but the best experiencethat they can
in that video conferencing.
So I would not be surprised
if that staysthe top of the list
for certainly the interimas we're doing these surveys.
Occupancy sensors are an interesting one
because they actually haven'tshot up as much as I thought
in terms of organizations using it.
And I think that there are a few things
(14:28):
that are at play there.
First, I think that you have a cost
that’s associated withimplementing occupancy sensors.
And right now,
although we are
not in a recessionand in
a relatively stable economic period,
there has been a lot of discussion over the last couple of years
of what's around the corner.
And so I think capital budgets
(14:49):
have been really constrained,
for organizationsto do things like that,
that might be seen as nice to haves.
Additionally, I think that there are probably
privacy requirements also, and concerns around tracking,
you know, people too closely.
And what are you doingwith that?
So occupancy sensorshave not given necessarily
or had the increase
(15:09):
that I would have expectedeven a couple of years ago.
And I think it's becauseof those two reasons.
Yeah.
But sitting number twoespecially, you know,
again after a conversationwith Nick Bloom,
you know, talked about with the growthof hybrid work, the investment
by the investment communityinto technologies
to better support this new world.
And we've talked aboutone of the biggest issues is
(15:29):
when you do go to the officeand your team's not there.
So space booking is number two,
above occupancy sensorsand below video conferencing.
So clearly people are investingto make sure that
the probability of, you know, your team members being there
and making that a more seamless,
dynamic environment
than it was, in more ofthis kind of static.
‘I have my own desk’that
(15:50):
that clearly comes through in the results.
It does.
And what that tells us,
with it being number two, is that
it matters, yes, who is coming inand how often that they're in
and how long they're in.
But for a reallyeffective workplace,
you actually want to knowwhat type of spaces they're using
and how oftenthey're using them.
And there's an elementof room booking systems
(16:11):
that will allow for that.
But then alsowhat it allows for
is not only the analysis ofhow your space is being used,
but also better allows people
to understandwhere each other are.
And that's a really important thing
in this environment,is creating an easier way
for people to be able to find each other
and see each other,
and these room booking tools can provide that.
(16:32):
Yeah. That's great.
So one of my favorite business lessons
of all timeis what I always call
the Ma-Bell problemon Mother's Day.
And, you know, it's not quitethe same as it used to be,
back when we had direct linesbut it was always the,
you know, how does, the phone company
plan for Mother's Day
when everybody calls momat the same time
and just capacityplanning versus
whatever your steady stateor your average is,
(16:54):
you talk a lot in the report about,
do people have enough spaceto accommodate the heavy days
and when peoplecome in the most?
And thatcombined with,
you know what percentage of your portfolio
is nowflexible space
and how are you,
you know, augmentingyour fixed with flexible
to have a little bitmore ability to flex and move.
(17:15):
How are you seeing,you know, kind of flexibility,
flexible space as a percentage of the portfolio
and how people are managing against this?
You know, I don't haveeverybody coming in every day,
but there are days that we're going to have a heavy, heavy lift
So I think that thereare a couple things at play.
First, I think that that's why we're seeing a
moderation in downsizing right now.
(17:36):
That's one of the reasonswhy we're seeing it,
is that organizations
are telling usthat on peak days,
which are maybe 1 or 2 daysa week, usually mid week,
they're actually upabove 60% occupancy,
I think three quarters of our survey respondents told us that.
Well, that's where we werebefore the pandemic.
And so that meansthat there is only so much
(17:56):
that you can do to be ableto make that more efficient.
The issue is, is that on non-peak days
you might be losing
an element of vibrancyin your organization
because you areplanning towards peak days,
and therefore on non-peak days
it might feel a little bit dead and empty.
Now, there are multiple waysthat you can solve for that.
(18:17):
Number one, we obviously have seat sharing.
And seat sharing in this survey
showed loud and clear
that we are movingin the direction of more
people per seat.
So somewhere aroundtwo people per seat
is I think, where the average is now give or take,
depending on the type of industry that you're looking at.
And we have an occupancyinsights group
(18:38):
that actually studiestheir own clients
and what they're doing.
And for the first timelast year,
they saw intheir own data
that there are more people than seats in organizations.
And that is a hugeturning point,
because we have been talking about seat sharing
for a very long time,and now we're finally seeing
that it is actually bearingout in the numbers.
(19:00):
Secondly, you could maybeshut down a floor, right?
So if you have a multi floor portfolio
and you have unassigned seating,
you can turn on and off floors
as you need to in your portfolio
to really make sure that you're getting, a mass of people
where it counts to makethe environment feel vibrant.
But additionally, some landlordsare getting really creative
(19:22):
with the ways that they are offeringflexibility in their building.
And they might offer flexible office space within their building
that can serve as overflow spacefor organizations who need it.
And that is somethingthat we maybe
don't see the majorityof landlords doing.
But we do see some veryprogressive landlords doing.
(19:43):
And I evenheard one say
that they can start to usethat as a concession
instead of tenant improvementallowances and free rent
that used to be the typicaland traditional concessions.
Now you can offer time within flexible office space
that you can start to use as credits
that are offered as aconcession in these situations.
So there's a lot of different levers
(20:03):
that organizations can pull.
And frankly, they're experimentingwith them right now.
I wouldn't say that there's one
that's more popular than the other,
except for seat sharing,of course.
And I didn't catch it.
And maybe you door don't track it.
Do you track
if you break down activitieswithin an office
say betweenindividual work,
you know my time.
when I’m just by myselfdoing whatever I'm doing
versus say, socialization type of activities.
(20:27):
versus say collaboration activities.
Do you break outwhat percentage of the space
is dedicated to kind ofthose three buckets?
Or maybe you havedifferent buckets
and are you seeing,
you know, less space as a percentage dedicated to chairs
and more space dedicated to other things and
you know there was a great piecethe Wall Street Journal did years ago
(20:47):
on LinkedIn had a new officethey opened.
I think they said they had
75 different types of seating configurations,
most of whichwere not at a desk.
So I wonder, are you trackingkind of the
the morphing and changing of what the,
portfolio of types of spaces are within
within the client?
Yes. So not in this report we're not.
(21:08):
But again,we have a sister report
that our workplace team does,
that occupancy insights teamthat I talked about.
And they actually tracktheir own client portfolios
and they split it into
‘we space’, ‘me space’and ‘amenity space’
Okay.
They see is that the‘me space’ is shrinking.
The ‘we space’is increasing.
But that comeswith a big caveat
because I think for a while there
(21:28):
we were moving too muchtowards the ‘we space’.
And now we're realizing that
people need to stillhave focus and privacy.
And so that meansthat their
‘me space’ is still really important,
but how you solve for that ‘me space'
doesn’t have to be an assigned desk per person.
There might be smaller huddlerooms than people can go in.
(21:50):
There may be a banquette area
that's privatethat you can go into.
You may end up going into thatoverflow landlord space
just to have your ‘me’ time
and answer a few emailsor take a private phone call.
So there's a lot of differentways to solve for it.
But in traditional lease portfolios,
we do see that the ‘we’ space is increasing.
But what we also see is thatthe biggest meeting spaces,
(22:13):
the ones that tended to bethese showcase boardrooms
that people might have used for
three and four people meetings,most of the time
those are being broken down for more typical size meetings,
because what we see is landlords are
offering larger meeting spaceon amenity floors
that you, as an organization,can use
(22:33):
on the basis of which you need it
maybe a couple times a year,
and it's going to be
the best furniture,the best layout,
the best technology,
probably have services associated with it
such as catering,
and you're able to use that
within the building that you're in now,
instead of having to buildand manage that
within your ownleased square footage.
So very interestingwhat's happening
(22:55):
between ‘we’ and ‘me’ spaceand how you interact
with the larger buildingas a result of those changes?
Yeah. That's interesting.
You talkabout amenities
and when you break down amenities,
you talk about what'swhat are my amenities,
what are the amenitiesin the building and
what are the amenitiesin the neighborhood.
And that's interestingthat more and more of that
is shifting to kind of the shared space
or the variable space,
(23:16):
to offload having to sit and carry
that expensive boardroom thatnobody sits in all the time.
But when we looked at amenities
in one of our otherconversations,
you talked about kind of the evolution of
what is class [A] space,what are people looking at?
So I got your list hereit’s 18, 18 things
listed on this one thing,
food and bev right at the top.
But what's interesting isthe commute stuff is still the
(23:38):
is still towardsthe top
access to public transit,car parking.
I was happy to see a scooterparking making its way up the list
to number six. Amazing.
So still, commuteis the biggest amenity.
If you can avoid it is great.
EV charging station.
The one that surprised meis daycare.
Way down the list at 1634%
(24:00):
Is that because
it's not necessarily you know, most people
get it taking care ofoutside of the office place.
Was that just a tech thing
with oil changesand dry cleaning?
The daycare wasincorporated in the office.
I'm surprised that’s so low.
Yeah, so daycareis an interesting one.
And I think that it is very organization and location specific.
(24:22):
And what I mean by that isif you have an organization
that is made up of peoplethat need daycare,
then they are going towant daycare more.
Whereas if you havea large organization
that has all different typesof generations working in it
and commuting from everywhere,the daycare may be less of a discussion.
(24:43):
So I really think it's company to company specific,
depending on the employee basethat they have,
where they commute from,and you know what they want.
So that one doesn'tsurprise me because again,
this is a surveythat really is geared
towards the large globalmultinational companies.
And I really do think
that it is a much more specific
(25:04):
discussion to have within a company.
If a daycareis important.
But what it does bring you tois this discussion
about what's importantin the neighborhood
versus in the building.
And what we're seeing more and more of
is that landlordsused to think,
well, if I have food and beverage
and a gymand maybe some retail,
like a dry cleaner,then I'm set in.
And what we realize now
(25:24):
is that organizations actually prefer to be in
the neighborhoods,and the districts
that have all of thatavailable
so that you aren't prisonerto the building for that.
And then they wanttheir landlord
to provide more serviceoriented amenities
that are going to help themas a specific tenant.
So there is a real interplayright now that is happening
(25:44):
between neighborhoodsand buildings,
and landlords themselves haveto really pay attention to
who is my tenant base,what do they want?
What is the neighborhoodalready provide
versus what do I needto start to provide?
And that's a lot different
than I think it waseven just five years ago.
Yeah.
And we talked about that a lot,
that healthyneighborhoods
bring traffic from different types of people
(26:06):
doing differenttypes of things
at different hours of the day and it’s
it's the vibrancyof the neighborhood
that then makes the,the building itself
even feel more vibrant.
The other amenitythat was on here
that's surprisingly low,I don't know,
it’s number 12 indoor air quality
and, you know, Covid.
One thing it did is really highlight
the importance ofinternal environment
inside ofof an office building.
(26:27):
And clearly Covid was all about HVAC
But there's other things
and it kind of ties back alittle bit to sustainability.
You have that under wellness.
I would just
I would think
that there would be more investment
in internal environments,
air quality being one.
But other thingslighting, biophilia, you know,
(26:48):
all the different thingsthat that can make
an internal environment better.
I was surprised at that onewas still, as low as it was.
So the way that I read that finding is,
I don't know if I ever shared the storywith you about coffee.
One time, somebody shared a story with me
about providing coffeein an environment.
If you provide really goodcoffee in your workplace,
you're probably not going toget a pat on the back for it.
(27:10):
But if youtake that away,
you're going to get dingedfor that in a really big way.
And I see that as the samefor indoor air quality.
I think at the beginning of the pandemic,
just like elevator access
and how you were goingto get elevators to move,
everybody was talking about itbecause it was just
the subject of the day,
and it was interestingto people,
and there was an unknown around it.
(27:30):
However, now it's just a table stake.
I think thatin the buildings that are
any buildingreally in the, in the US,
at least that's of thethe ilk that organizations
are going to wantto lease them.
They're going to havegood indoor air quality
and the landlords are going to pay attention to that
and the second thatit doesn't,
people are going to startto scream and shout,
(27:52):
but I don't thinkit would really
ring out on a survey like thisbecause it's so expected,
[Julie] you know.[Jeff] Right, right.
Another thing is, big topicwe talked about last time.
More of on the corporate side
and a corporate objectiveside is sustainability
and sustainability objectives.
Since we’ve last talked,what's it called?
Local Law 97,I think has kicked in New York
(28:13):
which has addedadditional sustainability.
Challenges, objectives.
I don't know what the right word is.
It's not that high, is it more because it’s just a corporate
a corporate initiative.
How are you seeing sustainability
either become a more important priority or not?
There was a bunch of people,I think, on the list
that really didn't havesustainability goals per se.
(28:35):
How do you see sustainabilityobjectives playing out?
Yeah, well, it's a challenge or an objective
depending on what side of the table you're on, I guess.
But sustainabilityis another interesting one,
and it's one that I feel haslost a little bit of momentum
in terms of the waythat we're talking about it.
But that doesn'ttake away the fact
that many organizationsstill have net zero targets
(28:58):
that they are approaching very quickly,
at least by, you know, many by 2030.
And then you have some 2040and then still some 2050.
But they are in the horizon
where organizationsneed to think about this.
And at the same time, as you said,
there are regulationsand rules that are changing
in municipalities all over the United States
that are making this very, very real.
(29:20):
And so it does changefrom largest organizations
to smallest organizations
and whether you arelandlord or an occupier.
But I would arguethat most landlords,
just for their ownregulation and protection,
need to start moving in this directionif they're not already,
and certainly the ones that want to capture those large
(29:41):
credit tenants that havethese net zero goals
need to do it,because it is a differentiator
in terms of how your buildingis quote unquote “graded”
Because there's a lot of Grade A buildings out there.
Not all of themhave sustainability features,
but the best prime buildingsabsolutely do.
And those are going to be the ones
that have the greatest demand
(30:02):
by the best and the largest tenants
that need a landlord partnerto go on that
with them on the sustainabilityand net zero target journey.
So there are multiple reasons to really
continue to move in this direction.
But from my perspective,
I do feel like the narrative in the market
has pulled backa little bit,
but that doesn't meanthat it's any less important.
(30:23):
Tangential question,
but you're sitting therein a big company.
Do you see any movementacceleration in conversions
of those buildings that justaren't making the grade
post something like Local Law 97and I know it's not your
area of expertise per se or this report,
but CBRE is involvedin all types of real estate.
So are you seeing you know,is there is there a path forward
for some of these, placesthat just don't make the grade
(30:46):
as a Class A office space anymore?
Yes. So we actually doa lot of work on conversions.
Twice a year we collect around the United States
what isbeing converted,
and it is still a verysmall amount of inventory
that's being convertedjust under 2%,
which is not going to beenough to move the dial
in terms of any of these challenges,
whether it be vacancyor sustainability issues or
(31:09):
need formore housing.
However, the good news is, is that it has increased
over the last few yearsbecause the need is so great.
The issue is that weare in a bit of a traffic jam
from a capital markets perspective,
where a lot of building valueshave not reset yet.
There's been a lot of deals made between lenders and current owners
(31:30):
kicking the candown the road.
And now we're gettingstarting to get into the period.
And at least there's a sentiment out there
that as interest ratesstart to come down
and there's morestability in the market
that we're going tostart to see more of this
price discovery in the market,
which is going to allowbuilding values to be reset.
In order for a building to be converted
(31:50):
and still make it fruitfulfor the developer
who’s going to take onthe risk to convert that,
it needs to be at a certain basis.
The beauty of it is that
when it doesget converted,
it usually is going toget converted to its
highest and best use,because those that are doing
the conversionstypically know that.
And they're going to,you know
make surethat happens
to get the biggest return themselves.
And in that process,they're going to bring it up
(32:12):
to the standardthat it needs to be
from a sustainabilityperspective.
Because many of thelowest class buildings
and the oldest buildings,
there are systems in place
that just cannot be upgraded in their current form.
They have to be scrapped andnew systems have to be put in.
Wow, okay, so biggest,biggest surprise on this?
I mean, you've got the
(32:32):
you got the great benefit of
this kind of longitudinal data,which is so, so powerful,
you know, beyond the datathat you're collecting.
But now you get trends, and.
What was some of yourbiggest surprises this year?
And next summerwhen we catch up
what do you see as
that you seejust little peeks,
little hints, little touches of something that
(32:53):
that maybe is below the radar.
That's going to bea significant,
more significant portionof our conversation
a year from now?
So biggest surprise,it was certainly
the shift in sentimentaround downsizing.
I did expect that there wasgoing to be a moderation,
but I didn't expect
that there was going to besuch a pullback.
(33:14):
And then I certainly didn't expect
that that was going to come in tandem
with the Q2 numbersthat we saw.
We are very careful to sayone survey in one quarter
does not make a trend,
but it's certainly something that has sparked our interest
and that we're going to continueto stay very close to,
and I believe that as longas the economy, knock on wood,
(33:34):
stays onstable footing,
that we will be havinga much more
clear conversation next year,
that this is, in fact, a trend.
Now, that does not mean thatI think that we're going to
quickly get back to the vacancy levels
that we sawbefore the pandemic.
However, I do think that it means
that we're goingto get more comfort
in theoffice market,
(33:56):
which is going to allow for more capital markets transaction activity,
more resettingof values,
which is going to bring moretenants to the market
because they're going to feellike they're then able
to achieve better deals
from that landlord that now has a better basis.
And there's just going to be a lot that is unlocked in the market
because all of a sudden
things are starting to movein the right direction.
(34:17):
If the economy falters and we do not have that path forward
then we'll probably be having
a very difficult conversation next year.
That made us feel
that we were takinga few steps back,
but let's hope thatwe are not there.
Yeah.So I mean
this wholekind of recap
on the stuff thatneeds to be recapped.
On one handyou think, oh my gosh,
it’s going to come as a bigwave all at one time.
On the other hand,you know
(34:38):
we do see these headline grabbing stories
every nowand then about
such and such a building that sold for this two years ago.
That sold forthis today.
I mean, do you think we'rekind of working through that?
Is it like a cliffthat's overhanging,
or do we have enough activitywhere it can be kind of,
built in to theday to day activities?
(34:58):
And it's not going to be this
momentous, kind of event, you know, a calendar day event.
Yeah.
So I think thatthe narrative
has been that that cliff is coming
and it's going to be a reallyscary time for real estate.
And we believe that there arechallenges out there,
but we have never believedin that cliff mentality
where all of a sudden, overnight
we're going to see, you know,
(35:18):
the commercial real estatemarkets implode.
The reason for thatis because
fundamentals are relatively good across commercial real estate
notwithstanding office.
But evenin office
there is a huge bifurcationin the market.
And depending on your city,
your location within that city
and the type of buildingthat you are,
there are somethat are still renting
(35:40):
for historical high rentsbased on, you know,
the historyof what we've tracked.
So that is hard for some people to understand.
But generallyfundamentals are good
understanding there is a portion of spacethat is absolutely struggling.
So for many reasons,we do believe that, you know,
things are going to slowlywork their way out
(36:01):
because office is becoming thought of
as a more investableasset right now.
There are manythat are indicating to us
that they'reactually interested now
in investing in somewhat they call
could be generational dealsthat might be out there.
And along with that sentiment,there is a lot of dry powder
that is lookingto be invested.
So all those factorsbetween fundamentals,
(36:23):
people that are now interested in office
and also the capital that is out there to be invested,
lead us to believe that
although there will be painfor certain parties in this equation,
overall at a national level,
we should work this outover time
in as least painfula way as possible.
Yeah, and all those aggressive fed moves upseemed to have, settled down
(36:45):
maybe even goingback the other direction.
[Jff] You've talked about [Julie] Hopefully
the six critical elements, for cities
and really how important,you know, the cities are in,
in the healthof the office.
Because kind of backto what you said
it's about the whole neighborhood.
It's about thethe entire ecosystem,
that you sit in it. Right.
I think that's a real estate 101.
(37:06):
You know, you can change a building,
but you can't changechange the neighborhood per se.
That's exactly it.
And the difference,I think though,
is that location, location, locationstill holds true.
But what we mean by location, location, location is changing.
Central business districts, financial districtsused to be just fine,
because you had that commuter population coming in
(37:26):
at least four and a halfdays a week,
and now that has really changed.
And so what we mean by location, location, location now
is those vibrant mixed use districts
are more important than ever.
And we're tracking themvery closely.
We have a methodologyto track them.
And our hope is thatover the next decade,
cities change to have more ofthose vibrant mixed use districts,
(37:47):
which is ultimately for the office space that’s in them
going to be a rising tide.
Great.
Well, Julie, thank you again,for the update,
I appreciate it.
I look forward to our annual get togethers
and it's a whole different world
than when we started thisa couple of years ago
as the thankfully,
the Covid kind of fades,in the rearview mirror
and we kind of get back on more normal footing,
(38:10):
whatever normal footing means in 2024.
Thank goodness.
All right,
so she's Julie, I'm Jeff,
you're watching Work 20XX.
Thanks for watching.
Thanks for listeningon the podcast.
We'll see you next time. Take care.
Awesome.
Thank you.
All right. Awesome.
You're easy to talk to, as always.
Thank you.
So, you ready to go?
I am.
Okay, cool.
So I will
count us down.
Three.
Two.
One.
Hey, welcome backeverybody. Jeff Frick here.
Coming to youfrom the home studio
for another episodeof Work 20XX.
It's late summer.
Labor Day is just around the corner,
so it's our annual checkin with Julie Whelan from CBRE
(00:23):
to get their, their update on the
their Occupier Sentiment Survey.
So welcoming in
through the magic of the internetall the way from Boston.
She's Julie Whelan,
the Global Head of Occupier Thought Leadership from CBRE
Julie, greatto see you.
Thanks for having me, Jeff.
It's a great tradition to behere with you every year.
It is. I went and I checkedbefore we got on today.
We got on in June.
(00:43):
And you know, June in 2022
was a little bitof a scary situation
kind of comingout of the of Covid,
which is hard to imagine
that whole thingeven happened.
2023 we talked a lot about
kind of what'sgoing to make
buildings and neighborhoods sustainable.
So what's kind of the theme,
for 2024, the,
America's Occupier Sentiment Survey,
which everybodycan get online
(01:04):
31 pages of chartsand graphs and data
and somegreat analysis.
So what,
what's the big change for
or the theme maybe, for 2024?
Well, for the first timewriting this survey,
I feel likesince the pandemic,
we are actually writing itin a more normal voice.
It feels like we're in a more normal market
in a more normal environment,much more stable.
(01:27):
And I'd say that that was justa huge sentiment shift.
And then what was interesting wasas we were analyzing the data
and it was coming in, we were also getting,
a hold of Q2, real numbersof what was happening
in the office market.
And it actually helped us tounderstand that we feel that
we're at a real inflectionpoint in the market.
(01:47):
And the reason thatI feel that way
is because the sentimentin this survey
really showedthat there's a shift
in occupier behaviorright now.
The past four years,
it has been all about downsizing,
all about contracting,
all about letting go of space that you didn't need
in the face of the structuralchange of hybrid work.
And now we are at a point
(02:08):
where I think a lot of that has been done.
There's a lot more understanding
of what officeutilization is today
and is going to be
and therefore occupiers are sitting back and saying
maybe we shouldn'tget rid of space anymore,
and maybe in some cases
we should even start to expand.
And so that was a marked shiftin sentiment this year
(02:29):
that by the way
we see coming throughin the numbers.
Q2 was the first quarterin quite a while
that we saw positive net absorptionin the national office market.
Wow. So a couple thingsjumped out to me.
One, you said
or in the survey says
64% of the people say we're in a steady state,
which again, to what,you know,
reinforcing what you just said,that was not the case.
(02:50):
You know, trying to come out of Covid
and figure outwhat we were doing.
And it jives with Nick Bloom'sresearch over at Stanford
and work from home policies,
which he likes to say‘it's flat as a pancake’
and has been nowfor over a year in terms of,
you know, how many days a weekpeople are working,
there still seems to be this little fight.
You, last time we talked,you said
they gave up on Friday.
Fridays are gone,
but there still seems to bea little fight
(03:11):
on that third day of the week
where employers are looking for
people to come in three days a week
people are coming incloser to two.
So we still have this little,
a bit of a battle for that last,that last little bit.
But what's interesting too
before we talked about return to office mandates
and I probably
I promise I won't use that wordeven though I just did.
But your point was,
(03:32):
there's a difference between a policy
and there's a differencebetween enforcement.
And we're still seeing
this huge gap between what people want
and what’s statedin the form of a policy,
and then what they're actuallytracking and what they're,
punishing or taking action against.
Yeah. So there's a lot there.
But let's start with thewhole return to office.
(03:52):
I agree, we don't want to say that anymore.
And I think that was also
a shift that we startedto see last year.
But it's certainly,
a very clear onethis year
that we don't talk about that anymore.
And part of that reason is because
I think for most cases,we are at steady state.
Even if that steady stateisn’t exactly what
the leadershipin that organization wants.
(04:14):
And I think the reason theyare just sort of overlooking
maybe some of what is not happening
that they want to happen
is because there reallyisn't a huge chasm
between what employees are doing and what leaders want.
If employees were coming inone day a week
and employers wantedfour days a week, then yes,
we would still be talkingabout this return to office.
(04:35):
But I would argue
we're somewhere aroundhalf a day to a day
between the differenceof what employers want
and what employees are doing.
So in many cases,
organizations are just sayingwe're largely at a steady state.
We might try to pusha little bit more,
but it's not going to makea real difference
in our portfolio.
That being said,
there is still about a third
(04:56):
that are tryingto push harder,
but what we are very clearabout saying right now
is that the easy workhas been done.
Most organizations have set a policy.
Many are eventracking that policy.
If the policy is notbeing followed,
we believe that there actually has to be
much more of a deeper diagnostic
done in that organization
(05:16):
that helps them understand
what isthat barrier
that is stopping peoplefrom coming in more.
Is it a culture thing?
Is it the KPI thing?
Is it a locationof the office thing?
But in order to understand that,
you have to talkto your people.
You have to surveyyour people.
You have to really understand
what is drivingtheir behavior
(05:37):
in order to unlock different behavior.
Right.
Another thing that jumps out of the survey
is the difference between
big companiesand little companies.
And I think in the surveyyou define
big companies as 10,000 employees or over
and little companies as athousand employees or less.
And actually in the bigcompanies, they're still
they're still lookingat downsizing, potentially.
They're still making theadjustments at a higher rate.
(05:59):
On the downside,
where like 80%,I think of the small companies
are anticipatinggrowing their demand.
And it feels like
that’s more of a reflectionof just growing the business
than necessarilychanging the policies.
But a real split betweenBigCo’s and LittleCo’s.
Yeah. You made me chucklewhen you said that.
Because I used to read a story book to my kids
called Fredand Ted,
(06:19):
and one of them was bigand one of them was small.
I don't know which it was.Let's call them Fred and Ted.
So yes, I will say thatthere is absolutely a divide
between what the largeorganizations are doing
and what the smallerones are doing.
But let's not forget that
that wasn’t a lot differentbefore the pandemic.
What we saw evenbefore the pandemic,
in between the sort of financial crisis and the pandemic,
(06:41):
was that the largest organizations,
especially financial services companies,
were doing everythingthat they could
to really make sure thattheir portfolio was efficient.
I wouldn't even say that they wereso worried about it being effective,
because at that point
there was just a status quoof people coming in,
but it was very muchabout efficiency.
But during that time,
(07:01):
the tech companieswere growing, so
they were able to kind of negate what was happening
with the financial services companies.
And there was still thereforedecreasing vacancy
and increasing occupancyin buildings.
Now, today, that downsizing remains true,
but it remains true
I'd say more so, probably around
the tech companiesthat had
gathered alot of space
(07:22):
and are now adjustingto a new way of work.
But in many instances,the tech companies
had let go of a lot of their space.
Now they're starting to thinkthat they do want
more of an office presence,
and therefore they're goingthe other direction.
And tech companiesthemselves
are actually taking a larger share of leasing
than we have seenin the last four years.
Then you have the financialservices companies that,
(07:44):
yes, in some casesthey're downsizing,
depending on how big their portfolio is
and how fast they've been ableto acclimate to a new normal.
But in many cases,they were already
so small and efficient
that now that they want people backmore than the average company,
they actually are realizing
they have to provide moreof an employee experience.
So maybe need better spaceor bigger space.
(08:07):
So what we're seeingis definitely
a push and pull right now.
And there isn't so muchof a pull away from space
as there was.
So that has moderated
and we are seeing more ofa push towards more space.
Now smaller companies also
that maybe got rid of their space altogether
before thepandemic
and or during the pandemic
and just went home
or are now expanding
(08:29):
because the economic cycle is still pretty strong.
They're actually telling usthat they need more space.
And so as a result, now
you do have these two endsof the spectrum
that are ending somewhere in the middle.
Now, we're not saying thatthat means
that vacancyis all over gonna
All of a suddengoing to start to decrease,
because we actually do expect that
vacancy will continue to increaseover the next year or so.
(08:50):
But we are much closer to the end of this down cycle, we think
than we are from the beginning of it.
Yeah.
Well, let's talk about efficiency versus effectiveness and
Those are twogreat words
we’ll keep awayfrom productivity.
That one's a little bit harderto measure, but
one of the key findings,I think number two is
said that 73% believethat workplaces are effective,
(09:10):
but only 46% are measuringwhether it's effective.
And those that measure it
are actually not thinking that it'sas effective as it can be.
Also, another data point waskind of the ratio of people to seats
to chairs in the building.
And that's changing.
You know, people are going to more
shared spaces, and it'snot this 1:1 relationship.
(09:32):
So it still seems there's this like
there’s a lag of kind of thesetraditional measures of efficiency.
And we're really not movingas quickly as one might hope
in effectiveness.
Phil Kirschner from McKinseyhas this great line.
Rather than writing a bookabout the building,
write a book about how the building gets a chapter
in the successstory of the company.
(09:53):
And it's a real different way
to think about the effectiveness,
the effectiveness of the spacearound a particular,
you know, activityor objective or goal.
So then you can investand make it better
for that, that thing.
How do you see,
you know,kind of this slow shift
in measuring effectivenessand workplace productivity
and HR measures versus,
you know, butts in seats and,
(10:13):
and efficiency and how manycubes are spaced, are taken
Yes. Well, you know,real estate professionals were
are not sociologists. Right.
So they don't reallyalways understand people.
And that's not the speakthat they've had to speak in.
They have always really focused on
efficiency of portfolioswhich was measured
by square feet per seat,square feet per person.
(10:36):
How often people were coming in.
So by far and large,
that is how workplaceeffectiveness is measured.
And that’s how most organizationsare measuring it
that are measuring space right now.
However, effectiveness means something very different
than people being in seats,
because what we know is that even before the pandemic,
people werenot engaged.
(10:56):
They were not alwayshappy at work,
and they were not, thereforealways effective at work.
But when you thinkabout the word effectiveness,
even when we're havingour annual reviews
or our mid-year reviews
or our monthly one on ones with our managers,
how do they know thatwe're being effective?
Effective against what?
Well, there's goals that we have.
There are clear goalsthat tell us if we're
(11:19):
and we have KPIs against ifwe're achieving those goals.
I think the big piece of the officethat's missing right now
is that that goal in the pasthas been just get people in,
and now that goalis shifting.
But we don't have a new goal.
That's very clear about the why
we have to bein the office.
So the policiesare stated
(11:40):
and that gives us the number of dayswe're supposed to be in.
And therefore if we can measure against that,
then we're sayingwe're being effective.
However, the real goalis interpersonal connections
and getting people to work together
and driving the culture of organizations.
And until we can really beginto measure around that,
then we're really notgoing to know
(12:01):
if our workplacesare effective.
There are somein this survey
that did tell us that theyare measuring based on
employee engagementor attrition and retention,
and even a few that say
that they'remeasuring our productivity.
But I would argue thatthose are probably companies
where it's very clear cut
on how to measurefor productivity.
Many knowledge workers.
(12:22):
That's a very, very difficult nut to crack.
Right? Right.
And they're using thingslike retention.
And you know, there'ssome other HR metrics
and engagementthat that are out there.
So shifting gearsa little bit about investment,
I was really surprised to see
in the techinvestment category
that video conferencingwas still at the top of the list
number one at like 82%.
(12:43):
But then afterwardsyou're seeing some of the stuff
that's more supportive of hybrid
things like space bookingI think was 64%.
What was surprisingly low to me is occupancy sensors
and some of these thingsthat we've talked about before
that will give additional insight
beyond badge swipesas to how
actual spaces are being used.
And, you know,are they overused
(13:03):
or are they under utilized.
And, you know, if you kind of map that with
that with kind of activitybased spaces and more variance
within the spaces within
either the company space itselfor within the building,
a lot of focus there.
I mean, video conferencingstill, number one,
that's really surprises me.
I mean, we all have phones,
kids a lot younger than you and I
(13:24):
probably take most of the video conferences
on their phonesanyway.
How do you seekind of this
this investment in the sensors
to get the better datato really know
what's going on insideyour four walls?
Yeah.
Well, so videoconferencing
is an interesting one.
First, we have to realizethat there are
hundreds of millions of square feetthat are occupied.
So outfitting all of thatwith technology
(13:45):
to suit this new world of workis going to take some time.
And I think that these survey results
show us thatthat time is still unfolding.
Additionally, I thinkthat video conferencing is,
is increasingin terms of sophistication.
And so I think that there'san element of that
that will continueto be an ongoing trend
within organizationsas they look
(14:07):
to not only give videoconferencing,
but the best experiencethat they can
in that video conferencing.
So I would not be surprised
if that staysthe top of the list
for certainly the interimas we're doing these surveys.
Occupancy sensors are an interesting one
because they actually haven'tshot up as much as I thought
in terms of organizations using it.
And I think that there are a few things
(14:28):
that are at play there.
First, I think that you have a cost
that’s associated withimplementing occupancy sensors.
And right now,
although we are
not in a recessionand in
a relatively stable economic period,
there has been a lot of discussion over the last couple of years
of what's around the corner.
And so I think capital budgets
(14:49):
have been really constrained,
for organizationsto do things like that,
that might be seen as nice to haves.
Additionally, I think that there are probably
privacy requirements also, and concerns around tracking,
you know, people too closely.
And what are you doingwith that?
So occupancy sensorshave not given necessarily
or had the increase
(15:09):
that I would have expectedeven a couple of years ago.
And I think it's becauseof those two reasons.
Yeah.
But sitting number twoespecially, you know,
again after a conversationwith Nick Bloom,
you know, talked about with the growthof hybrid work, the investment
by the investment communityinto technologies
to better support this new world.
And we've talked aboutone of the biggest issues is
(15:29):
when you do go to the officeand your team's not there.
So space booking is number two,
above occupancy sensorsand below video conferencing.
So clearly people are investingto make sure that
the probability of, you know, your team members being there
and making that a more seamless,
dynamic environment
than it was, in more ofthis kind of static.
‘I have my own desk’that
(15:50):
that clearly comes through in the results.
It does.
And what that tells us,
with it being number two, is that
it matters, yes, who is coming inand how often that they're in
and how long they're in.
But for a reallyeffective workplace,
you actually want to knowwhat type of spaces they're using
and how oftenthey're using them.
And there's an elementof room booking systems
(16:11):
that will allow for that.
But then alsowhat it allows for
is not only the analysis ofhow your space is being used,
but also better allows people
to understandwhere each other are.
And that's a really important thing
in this environment,is creating an easier way
for people to be able to find each other
and see each other,
and these room booking tools can provide that.
(16:32):
Yeah. That's great.
So one of my favorite business lessons
of all timeis what I always call
the Ma-Bell problemon Mother's Day.
And, you know, it's not quitethe same as it used to be,
back when we had direct linesbut it was always the,
you know, how does, the phone company
plan for Mother's Day
when everybody calls momat the same time
and just capacityplanning versus
whatever your steady stateor your average is,
(16:54):
you talk a lot in the report about,
do people have enough spaceto accommodate the heavy days
and when peoplecome in the most?
And thatcombined with,
you know what percentage of your portfolio
is nowflexible space
and how are you,
you know, augmentingyour fixed with flexible
to have a little bitmore ability to flex and move.
(17:15):
How are you seeing,you know, kind of flexibility,
flexible space as a percentage of the portfolio
and how people are managing against this?
You know, I don't haveeverybody coming in every day,
but there are days that we're going to have a heavy, heavy lift
So I think that thereare a couple things at play.
First, I think that that's why we're seeing a
moderation in downsizing right now.
(17:36):
That's one of the reasonswhy we're seeing it,
is that organizations
are telling usthat on peak days,
which are maybe 1 or 2 daysa week, usually mid week,
they're actually upabove 60% occupancy,
I think three quarters of our survey respondents told us that.
Well, that's where we werebefore the pandemic.
And so that meansthat there is only so much
(17:56):
that you can do to be ableto make that more efficient.
The issue is, is that on non-peak days
you might be losing
an element of vibrancyin your organization
because you areplanning towards peak days,
and therefore on non-peak days
it might feel a little bit dead and empty.
Now, there are multiple waysthat you can solve for that.
(18:17):
Number one, we obviously have seat sharing.
And seat sharing in this survey
showed loud and clear
that we are movingin the direction of more
people per seat.
So somewhere aroundtwo people per seat
is I think, where the average is now give or take,
depending on the type of industry that you're looking at.
And we have an occupancyinsights group
(18:38):
that actually studiestheir own clients
and what they're doing.
And for the first timelast year,
they saw intheir own data
that there are more people than seats in organizations.
And that is a hugeturning point,
because we have been talking about seat sharing
for a very long time,and now we're finally seeing
that it is actually bearingout in the numbers.
(19:00):
Secondly, you could maybeshut down a floor, right?
So if you have a multi floor portfolio
and you have unassigned seating,
you can turn on and off floors
as you need to in your portfolio
to really make sure that you're getting, a mass of people
where it counts to makethe environment feel vibrant.
But additionally, some landlordsare getting really creative
(19:22):
with the ways that they are offeringflexibility in their building.
And they might offer flexible office space within their building
that can serve as overflow spacefor organizations who need it.
And that is somethingthat we maybe
don't see the majorityof landlords doing.
But we do see some veryprogressive landlords doing.
(19:43):
And I evenheard one say
that they can start to usethat as a concession
instead of tenant improvementallowances and free rent
that used to be the typicaland traditional concessions.
Now you can offer time within flexible office space
that you can start to use as credits
that are offered as aconcession in these situations.
So there's a lot of different levers
(20:03):
that organizations can pull.
And frankly, they're experimentingwith them right now.
I wouldn't say that there's one
that's more popular than the other,
except for seat sharing,of course.
And I didn't catch it.
And maybe you door don't track it.
Do you track
if you break down activitieswithin an office
say betweenindividual work,
you know my time.
when I’m just by myselfdoing whatever I'm doing
versus say, socialization type of activities.
(20:27):
versus say collaboration activities.
Do you break outwhat percentage of the space
is dedicated to kind ofthose three buckets?
Or maybe you havedifferent buckets
and are you seeing,
you know, less space as a percentage dedicated to chairs
and more space dedicated to other things and
you know there was a great piecethe Wall Street Journal did years ago
(20:47):
on LinkedIn had a new officethey opened.
I think they said they had
75 different types of seating configurations,
most of whichwere not at a desk.
So I wonder, are you trackingkind of the
the morphing and changing of what the,
portfolio of types of spaces are within
within the client?
Yes. So not in this report we're not.
(21:08):
But again,we have a sister report
that our workplace team does,
that occupancy insights teamthat I talked about.
And they actually tracktheir own client portfolios
and they split it into
‘we space’, ‘me space’and ‘amenity space’
Okay.
They see is that the‘me space’ is shrinking.
The ‘we space’is increasing.
But that comeswith a big caveat
because I think for a while there
(21:28):
we were moving too muchtowards the ‘we space’.
And now we're realizing that
people need to stillhave focus and privacy.
And so that meansthat their
‘me space’ is still really important,
but how you solve for that ‘me space'
doesn’t have to be an assigned desk per person.
There might be smaller huddlerooms than people can go in.
(21:50):
There may be a banquette area
that's privatethat you can go into.
You may end up going into thatoverflow landlord space
just to have your ‘me’ time
and answer a few emailsor take a private phone call.
So there's a lot of differentways to solve for it.
But in traditional lease portfolios,
we do see that the ‘we’ space is increasing.
But what we also see is thatthe biggest meeting spaces,
(22:13):
the ones that tended to bethese showcase boardrooms
that people might have used for
three and four people meetings,most of the time
those are being broken down for more typical size meetings,
because what we see is landlords are
offering larger meeting spaceon amenity floors
that you, as an organization,can use
(22:33):
on the basis of which you need it
maybe a couple times a year,
and it's going to be
the best furniture,the best layout,
the best technology,
probably have services associated with it
such as catering,
and you're able to use that
within the building that you're in now,
instead of having to buildand manage that
within your ownleased square footage.
So very interestingwhat's happening
(22:55):
between ‘we’ and ‘me’ spaceand how you interact
with the larger buildingas a result of those changes?
Yeah. That's interesting.
You talkabout amenities
and when you break down amenities,
you talk about what'swhat are my amenities,
what are the amenitiesin the building and
what are the amenitiesin the neighborhood.
And that's interestingthat more and more of that
is shifting to kind of the shared space
or the variable space,
(23:16):
to offload having to sit and carry
that expensive boardroom thatnobody sits in all the time.
But when we looked at amenities
in one of our otherconversations,
you talked about kind of the evolution of
what is class [A] space,what are people looking at?
So I got your list hereit’s 18, 18 things
listed on this one thing,
food and bev right at the top.
But what's interesting isthe commute stuff is still the
(23:38):
is still towardsthe top
access to public transit,car parking.
I was happy to see a scooterparking making its way up the list
to number six. Amazing.
So still, commuteis the biggest amenity.
If you can avoid it is great.
EV charging station.
The one that surprised meis daycare.
Way down the list at 1634%
(24:00):
Is that because
it's not necessarily you know, most people
get it taking care ofoutside of the office place.
Was that just a tech thing
with oil changesand dry cleaning?
The daycare wasincorporated in the office.
I'm surprised that’s so low.
Yeah, so daycareis an interesting one.
And I think that it is very organization and location specific.
(24:22):
And what I mean by that isif you have an organization
that is made up of peoplethat need daycare,
then they are going towant daycare more.
Whereas if you havea large organization
that has all different typesof generations working in it
and commuting from everywhere,the daycare may be less of a discussion.
(24:43):
So I really think it's company to company specific,
depending on the employee basethat they have,
where they commute from,and you know what they want.
So that one doesn'tsurprise me because again,
this is a surveythat really is geared
towards the large globalmultinational companies.
And I really do think
that it is a much more specific
(25:04):
discussion to have within a company.
If a daycareis important.
But what it does bring you tois this discussion
about what's importantin the neighborhood
versus in the building.
And what we're seeing more and more of
is that landlordsused to think,
well, if I have food and beverage
and a gymand maybe some retail,
like a dry cleaner,then I'm set in.
And what we realize now
(25:24):
is that organizations actually prefer to be in
the neighborhoods,and the districts
that have all of thatavailable
so that you aren't prisonerto the building for that.
And then they wanttheir landlord
to provide more serviceoriented amenities
that are going to help themas a specific tenant.
So there is a real interplayright now that is happening
(25:44):
between neighborhoodsand buildings,
and landlords themselves haveto really pay attention to
who is my tenant base,what do they want?
What is the neighborhoodalready provide
versus what do I needto start to provide?
And that's a lot different
than I think it waseven just five years ago.
Yeah.
And we talked about that a lot,
that healthyneighborhoods
bring traffic from different types of people
(26:06):
doing differenttypes of things
at different hours of the day and it’s
it's the vibrancyof the neighborhood
that then makes the,the building itself
even feel more vibrant.
The other amenitythat was on here
that's surprisingly low,I don't know,
it’s number 12 indoor air quality
and, you know, Covid.
One thing it did is really highlight
the importance ofinternal environment
inside ofof an office building.
(26:27):
And clearly Covid was all about HVAC
But there's other things
and it kind of ties back alittle bit to sustainability.
You have that under wellness.
I would just
I would think
that there would be more investment
in internal environments,
air quality being one.
But other thingslighting, biophilia, you know,
(26:48):
all the different thingsthat that can make
an internal environment better.
I was surprised at that onewas still, as low as it was.
So the way that I read that finding is,
I don't know if I ever shared the storywith you about coffee.
One time, somebody shared a story with me
about providing coffeein an environment.
If you provide really goodcoffee in your workplace,
you're probably not going toget a pat on the back for it.
(27:10):
But if youtake that away,
you're going to get dingedfor that in a really big way.
And I see that as the samefor indoor air quality.
I think at the beginning of the pandemic,
just like elevator access
and how you were goingto get elevators to move,
everybody was talking about itbecause it was just
the subject of the day,
and it was interestingto people,
and there was an unknown around it.
(27:30):
However, now it's just a table stake.
I think thatin the buildings that are
any buildingreally in the, in the US,
at least that's of thethe ilk that organizations
are going to wantto lease them.
They're going to havegood indoor air quality
and the landlords are going to pay attention to that
and the second thatit doesn't,
people are going to startto scream and shout,
(27:52):
but I don't thinkit would really
ring out on a survey like thisbecause it's so expected,
[Julie] you know.[Jeff] Right, right.
Another thing is, big topicwe talked about last time.
More of on the corporate side
and a corporate objectiveside is sustainability
and sustainability objectives.
Since we’ve last talked,what's it called?
Local Law 97,I think has kicked in New York
(28:13):
which has addedadditional sustainability.
Challenges, objectives.
I don't know what the right word is.
It's not that high, is it more because it’s just a corporate
a corporate initiative.
How are you seeing sustainability
either become a more important priority or not?
There was a bunch of people,I think, on the list
that really didn't havesustainability goals per se.
(28:35):
How do you see sustainabilityobjectives playing out?
Yeah, well, it's a challenge or an objective
depending on what side of the table you're on, I guess.
But sustainabilityis another interesting one,
and it's one that I feel haslost a little bit of momentum
in terms of the waythat we're talking about it.
But that doesn'ttake away the fact
that many organizationsstill have net zero targets
(28:58):
that they are approaching very quickly,
at least by, you know, many by 2030.
And then you have some 2040and then still some 2050.
But they are in the horizon
where organizationsneed to think about this.
And at the same time, as you said,
there are regulationsand rules that are changing
in municipalities all over the United States
that are making this very, very real.
(29:20):
And so it does changefrom largest organizations
to smallest organizations
and whether you arelandlord or an occupier.
But I would arguethat most landlords,
just for their ownregulation and protection,
need to start moving in this directionif they're not already,
and certainly the ones that want to capture those large
(29:41):
credit tenants that havethese net zero goals
need to do it,because it is a differentiator
in terms of how your buildingis quote unquote “graded”
Because there's a lot of Grade A buildings out there.
Not all of themhave sustainability features,
but the best prime buildingsabsolutely do.
And those are going to be the ones
that have the greatest demand
(30:02):
by the best and the largest tenants
that need a landlord partnerto go on that
with them on the sustainabilityand net zero target journey.
So there are multiple reasons to really
continue to move in this direction.
But from my perspective,
I do feel like the narrative in the market
has pulled backa little bit,
but that doesn't meanthat it's any less important.
(30:23):
Tangential question,
but you're sitting therein a big company.
Do you see any movementacceleration in conversions
of those buildings that justaren't making the grade
post something like Local Law 97and I know it's not your
area of expertise per se or this report,
but CBRE is involvedin all types of real estate.
So are you seeing you know,is there is there a path forward
for some of these, placesthat just don't make the grade
(30:46):
as a Class A office space anymore?
Yes. So we actually doa lot of work on conversions.
Twice a year we collect around the United States
what isbeing converted,
and it is still a verysmall amount of inventory
that's being convertedjust under 2%,
which is not going to beenough to move the dial
in terms of any of these challenges,
whether it be vacancyor sustainability issues or
(31:09):
need formore housing.
However, the good news is, is that it has increased
over the last few yearsbecause the need is so great.
The issue is that weare in a bit of a traffic jam
from a capital markets perspective,
where a lot of building valueshave not reset yet.
There's been a lot of deals made between lenders and current owners
(31:30):
kicking the candown the road.
And now we're gettingstarting to get into the period.
And at least there's a sentiment out there
that as interest ratesstart to come down
and there's morestability in the market
that we're going tostart to see more of this
price discovery in the market,
which is going to allowbuilding values to be reset.
In order for a building to be converted
(31:50):
and still make it fruitfulfor the developer
who’s going to take onthe risk to convert that,
it needs to be at a certain basis.
The beauty of it is that
when it doesget converted,
it usually is going toget converted to its
highest and best use,because those that are doing
the conversionstypically know that.
And they're going to,you know
make surethat happens
to get the biggest return themselves.
And in that process,they're going to bring it up
(32:12):
to the standardthat it needs to be
from a sustainabilityperspective.
Because many of thelowest class buildings
and the oldest buildings,
there are systems in place
that just cannot be upgraded in their current form.
They have to be scrapped andnew systems have to be put in.
Wow, okay, so biggest,biggest surprise on this?
I mean, you've got the
(32:32):
you got the great benefit of
this kind of longitudinal data,which is so, so powerful,
you know, beyond the datathat you're collecting.
But now you get trends, and.
What was some of yourbiggest surprises this year?
And next summerwhen we catch up
what do you see as
that you seejust little peeks,
little hints, little touches of something that
(32:53):
that maybe is below the radar.
That's going to bea significant,
more significant portionof our conversation
a year from now?
So biggest surprise,it was certainly
the shift in sentimentaround downsizing.
I did expect that there wasgoing to be a moderation,
but I didn't expect
that there was going to besuch a pullback.
(33:14):
And then I certainly didn't expect
that that was going to come in tandem
with the Q2 numbersthat we saw.
We are very careful to sayone survey in one quarter
does not make a trend,
but it's certainly something that has sparked our interest
and that we're going to continueto stay very close to,
and I believe that as longas the economy, knock on wood,
(33:34):
stays onstable footing,
that we will be havinga much more
clear conversation next year,
that this is, in fact, a trend.
Now, that does not mean thatI think that we're going to
quickly get back to the vacancy levels
that we sawbefore the pandemic.
However, I do think that it means
that we're goingto get more comfort
in theoffice market,
(33:56):
which is going to allow for more capital markets transaction activity,
more resettingof values,
which is going to bring moretenants to the market
because they're going to feellike they're then able
to achieve better deals
from that landlord that now has a better basis.
And there's just going to be a lot that is unlocked in the market
because all of a sudden
things are starting to movein the right direction.
(34:17):
If the economy falters and we do not have that path forward
then we'll probably be having
a very difficult conversation next year.
That made us feel
that we were takinga few steps back,
but let's hope thatwe are not there.
Yeah.So I mean
this wholekind of recap
on the stuff thatneeds to be recapped.
On one handyou think, oh my gosh,
it’s going to come as a bigwave all at one time.
On the other hand,you know
(34:38):
we do see these headline grabbing stories
every nowand then about
such and such a building that sold for this two years ago.
That sold forthis today.
I mean, do you think we'rekind of working through that?
Is it like a cliffthat's overhanging,
or do we have enough activitywhere it can be kind of,
built in to theday to day activities?
(34:58):
And it's not going to be this
momentous, kind of event, you know, a calendar day event.
Yeah.
So I think thatthe narrative
has been that that cliff is coming
and it's going to be a reallyscary time for real estate.
And we believe that there arechallenges out there,
but we have never believedin that cliff mentality
where all of a sudden, overnight
we're going to see, you know,
(35:18):
the commercial real estatemarkets implode.
The reason for thatis because
fundamentals are relatively good across commercial real estate
notwithstanding office.
But evenin office
there is a huge bifurcationin the market.
And depending on your city,
your location within that city
and the type of buildingthat you are,
there are somethat are still renting
(35:40):
for historical high rentsbased on, you know,
the historyof what we've tracked.
So that is hard for some people to understand.
But generallyfundamentals are good
understanding there is a portion of spacethat is absolutely struggling.
So for many reasons,we do believe that, you know,
things are going to slowlywork their way out
(36:01):
because office is becoming thought of
as a more investableasset right now.
There are manythat are indicating to us
that they'reactually interested now
in investing in somewhat they call
could be generational dealsthat might be out there.
And along with that sentiment,there is a lot of dry powder
that is lookingto be invested.
So all those factorsbetween fundamentals,
(36:23):
people that are now interested in office
and also the capital that is out there to be invested,
lead us to believe that
although there will be painfor certain parties in this equation,
overall at a national level,
we should work this outover time
in as least painfula way as possible.
Yeah, and all those aggressive fed moves upseemed to have, settled down
(36:45):
maybe even goingback the other direction.
[Jff] You've talked about [Julie] Hopefully
the six critical elements, for cities
and really how important,you know, the cities are in,
in the healthof the office.
Because kind of backto what you said
it's about the whole neighborhood.
It's about thethe entire ecosystem,
that you sit in it. Right.
I think that's a real estate 101.
(37:06):
You know, you can change a building,
but you can't changechange the neighborhood per se.
That's exactly it.
And the difference,I think though,
is that location, location, locationstill holds true.
But what we mean by location, location, location is changing.
Central business districts, financial districtsused to be just fine,
because you had that commuter population coming in
(37:26):
at least four and a halfdays a week,
and now that has really changed.
And so what we mean by location, location, location now
is those vibrant mixed use districts
are more important than ever.
And we're tracking themvery closely.
We have a methodologyto track them.
And our hope is thatover the next decade,
cities change to have more ofthose vibrant mixed use districts,
(37:47):
which is ultimately for the office space that’s in them
going to be a rising tide.
Great.
Well, Julie, thank you again,for the update,
I appreciate it.
I look forward to our annual get togethers
and it's a whole different world
than when we started thisa couple of years ago
as the thankfully,
the Covid kind of fades,in the rearview mirror
and we kind of get back on more normal footing,
(38:10):
whatever normal footing means in 2024.
Thank goodness.
All right,
so she's Julie, I'm Jeff,
you're watching Work 20XX.
Thanks for watching.
Thanks for listeningon the podcast.
We'll see you next time. Take care.
Awesome.
Thank you.
All right. Awesome.
You're easy to talk to, as always.
Thank you.
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