Migration trends to the suburbs and Southern states is one of the macro trends impacting the outlook for office. People were already moving out of high cost-of-living areas of the Northeast and West Coast, which was benefiting lower cost markets such as Las Vegas, Phoenix, Texas, Florida, Atlanta and Nashville, notes Alan L. Pontius, Senior Vice President and National Director of Office & Industrial and Healthcare at Marcus & Millichap. “That macro trend of migration is going to reshape office,” he says. “At the same time, substantial speculation remains as to exactly how the return to the office is going to manifest and where it will manifest.”
The majority of respondents anticipate a shift to hybrid work models, but views are mixed on what those models will look like. More than half (56 percent) predict workers will continue to work from home 1-2 days per week, while 25 percent think work-from-home time will be higher at 3-4 days per week. Those who expect workers to remain home full time or in the office full time are in the minority at 8 percent and 11 percent, respectively. In addition, views on hybrid work models have continued to change over the past year. In the second-half 2021 survey, a bigger percentage thought workers would work from home 1-2 days (61 percent) and a smaller percentage thought people would work from home 3-4 days (18 percent) [Figure 5].
Although there is still debate on what hybrid work models might look like in the future, it seems clear that a majority of people want flexibility and the ability to work remotely at least some of the time, Pontius says. At the same time, people recognize the value in working from the office. Younger workers, in particular, want to be in the office to learn, meet people, collaborate and develop their careers. “We will see a hybrid approach over the next couple of years for sure, but at the same time, we’ll see more time in the office as we go forward,” he adds.
Sentiment on office continues to lag other sectors. Office investors who think it is a good time to buy more of that property dropped to 28 percent, compared to 43 percent in the prior survey. Most respondents (48 percent) said it is a better time to hold, while 24 percent consider it a better to sell. However, industry data shows greater stability in the office market over the past year. Although vacancies ticked higher to 15.8 percent, asking rents held firm and net absorption for the year was positive, according to Marcus & Millichap. A majority of office owners anticipate stable or slightly improving values in the coming year, with an average increase of 2.4 percent expected. Those who think values could decline are in the minority at 16 percent.