California’s Office Space Markets Continue to Compete with Remote Work Environment

The current state of the California office real estate market is strongly impacted by the dilemma of resolving the return-to-office delays. Los Angeles, San Francisco, and other major metropolitan business hubs still have the appearance and atmosphere of ghost towns compared to their pre-pandemic activity. Remote work is still the daily norm for many corporate and medium to small businesses.

Employers, landlords, and developers are weighing the value and effects of prospective amenities and attractions that can entice workers back into office environments. The input and involvement of both landlords and tenants of office buildings are needed to initiate.

Erin Murphy, Partner at Allen Matkins, and Andrew Ratner, Executive Managing Director and Executive Vice President at CBRE, share their thoughts on efforts and methods to resolve the delay in a major return of workers to commercial office buildings, as part of the Summer 2023 Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey.

Collaboration Needed Between Landlords, Tenants, and City Officials

According to Erin Murphy, a concerted effort by local officials in cities like Los Angeles and San Francisco is essential for regaining vital business office activity and safety in downtown commercial areas. Effective incentives from commercial landlords and tenants are necessary to attract workers back to office environments. Murphy states, “One of the things that we’re seeing as a trend is a flight to quality and tenants moving locations to be in areas where there are a lot of amenities. So I think it’ll be important for landlords to try to bring some of those amenities into the buildings themselves.”

Building interiors should be pleasant to enter, and the daily commute for employees must be worth the effort. By bringing back a regular influx of workers to commercial centers, surrounding stores, restaurants, and other businesses can be revitalized, gaining greater financial returns.

Office Vacancies’ Silver Lining

Andrew Ratner states that, amid the negative news, a bright spot prevails for the current office property market. He explains that “today there are many landlords that have the capital to be able to allow a tenant to build a new footprint, and most tenants that we’ve seen can probably get by with 15% to 30% less space.” This scenario provides an optimal advantage for office tenants to negotiate a cost-effective leases.

According to Ratner, this attractive rental opportunity is expected to last for the next couple of years. Tenants can enjoy low rents, favorable lease terms, and attractive concessions, and enhance their office space while building their businesses and gaining greater revenues and overall ROI.

Amenities Will Be A Key Component to Bring Back Workers

According to Murphy, a growing trend among these employees is a strong attraction to quality amenities in and around the workplace. In San Francisco and other cities, ordinances have been approved for property owners and developers to obtain entitlements for such commercial building upgrades, such as onsite dining, fitness centers, and outdoor green spaces. Developers can incentivize a greater return-to-workplace movement by installing additional bathrooms and attractive communal areas for employees in office buildings.

Employers can most easily initiate the return of office workers by providing aspects of the office environment that employees have missed the most while working remotely. These attractive office amenities include updated technologies like large curved digital monitors, zoom rooms, and video conferencing facilities. Communal gathering spaces and centers where workers can benefit from mentoring and building personal working relationships are also invaluable to promoting a massive return to offices by employees.

Looking Ahead With Employees In Mind

By focusing on employees as vital consumers of a workplace experience designed and hosted by the employer, business owners and leaders can implement a greater and highly effective return-to-office movement of their remote employees. When attractive and practical amenities and office updates are provided, remote workers are incentivized to return to their former office environments. The result will be a strengthened, more stable, and growing office sector in commercial real estate.