The national office market has weathered a difficult two years. Vacancies are up, while the market continues to soften into the end of 2022. Economic headwinds have weighed the market down, while occupiers continue to exhibit caution in undertaking long-term office commitments.
While these challenges persist, there has been some positive momentum. In-office occupancy rose to a post-pandemic high in September 2022, as recent consistency in public health has encouraged greater return-to-office momentum. What tenants are seeking is quality space that aligns with their business model and social goals in this post-pandemic world.
One aspect many companies, especially those in the tech industry, have identified as a priority moving forward is environmental wellness.
Environmental wellness promotes the well-being of employees and the group at-large through the natural environment in which they are located. This includes access to enhanced outdoor workspaces, indoor spaces with fresh air and natural light, easy ingress and egress, a variety of food amenities, and an overall clean work and building environment.
Many Americans have taken steps to strengthen environmental wellness in their homes. After more than two years of remote work, they have shared that they want that same feeling of wellness in their office.
Despite widespread concerns about a looming recession, the labor market remains robust, with unemployment near record lows. In order to attract and retain quality employees, companies are heeding their shifting demands and behaviors.
Enhanced outdoor spaces are now being designed to spur collaboration and innovation. Gone are the days of a simple rooftop patio or seating area in a breezeway, landlords are now seeking to provide outdoor workstations that provide access to quality networking and presentation tech.
Indoor spaces designed to feel and even become outdoor spaces have proven to be just as important. Humans have always gravitated towards rooms with high ceilings and large windows that provide natural light, but now property owners and developers are seeking to connect them with their exterior locations. Open air-lobbies and hybrid indoor/outdoor meeting spaces with roll-up doors and windows are just a few ways that landlords are bringing the outdoors in.
This demand isn’t just limited to spaces where employees work, tenants are also seeking improved food amenities. This includes access to quality dining experiences that are varied in design and cuisine.
One of the most prominent benefits from investment in environmental wellness is stress relief and increased productivity by employees who are working in these spaces. The U.S. Department of Agriculture says being in nature can restore and strengthen our mental capacities, increasing focus and attention.
Beyond the immediate impact on the health and productivity of employees, environmental wellness also enables a greater sense of kindness, not only amongst co-workers, but also with nature. Helping preserve the environment can provide a sense of camaraderie among employees, and fulfillment for the individual, while reducing both an individual and a company’s carbon footprint.
Capital costs for improvements and renovations will fall on the property owners. While they may look to offset these costs by passing on some allowable expenses to tenants, owners should look at these measures as an investment.
Investment in environmental wellness will drive overall property value, while increasing tenancy and rental rates. While the overall office market continues to weaken, Newmark Research shows that market bifurcation exists. Top quality assets are attracting a disproportionate demand and remain best positioned to do so into the future. Prospective tenants are showing that they are willing to lease space if it provides incentive for their employees to return to the office.
It’s not likely the office market will return to the same place as pre-pandemic. Instead, office owners and operators will have to adapt with the changing needs of tenants and their employees. Environmental wellness will be a factor as the landscape shifts, and investment into the area will pay dividends in the future.
Jennifer (Jen) Frisk is a Senior Managing Director in Newmark’s downtown Los Angeles office, where she specializes in tenant representation and strategic advisory services. She is a part of the leadership team spearheading Newmark’s Technology & Innovation Practice Group, which specializes in advising technology, advertising, media and information technology companies.