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Corporate real estate executives who oversee office portfolios recently offered a glimpse of optimism for the beleaguered office sector. Thirty-eight percent of office-using companies said they expect to expand their occupied space over the next three years, compared to 20% in 2023, according to the CBRE 2024 Americas Office Occupier Sentiment Survey. (Although 37% of respondents to the survey said they plan to reduce their occupied space, that’s a drop from 53% last year.)
“An 18-percentage-point, year-over-year increase in companies anticipating expansion of their office footprints is a significant step toward a return to growth,” said Manish Kashyap, the company’s global president of advisory and transaction services, as quoted on the CBRE website. “It bodes well for a U.S. office market that has faced many challenges in recent years.”
Julie Whelan, CBRE global head of occupier research, reacted to the impact of the survey results on the CBRE website: “It’s possible we’re past the peak of the office-downsizing trend.”
The companies that anticipate expansion said their reasons include:
- Expected business growth
- Changes in workplace design standards that accommodate new work patterns
- Desire to recover from space trims during the pandemic
- Accommodation of additional employees
Small Companies, Big Plans
Of the smallest companies—those with fewer than 1,000 employees—80% said they plan to maintain or expand their portfolios during the next three years, compared to 63% last year. “Tenants with smaller requirements will continue to drive transaction velocity and shape the future of office leasing activity,” the survey report says. Leases for space between 10,000 square feet and 20,000 square feet account for an annual average of 54% of all lease transactions over the past five years.
Coldwell Banker Commercial’s 2024 Midyear Outlook reinforces the trend. “The rising demand for small office spaces is transforming the commercial real estate market across various regions,” says Dan Spiegel, senior vice president and managing director of Coldwell Banker Commercial.
For example, in Washington, D.C., and northern Virginia, tightening financial conditions are prompting clients to lease instead of buy, Spiegel says, while larger companies, particularly in some of the submarkets in the Los Angeles area and Charleston, S.C., are downsizing and seeking better amenities to attract employees back to the office. But other markets are seeing more absorption.
“In Las Vegas, small offices are doing well, as shown by bidding wars for properties, while larger spaces struggle, and the market maintains a vacancy rate of about 10%. Additionally, we’re seeing a surge of interest from sectors like medical services, insurance companies and tech startups, all in search of adaptable work environments to meet the changing needs of today’s businesses.”