The Return to Office: Playing Catch-up

Kevin Richards, Partner, Audit & Assurance | Deloitte & Touche LLP
Tim Coy, Manager, Center for Financial Services | Deloitte Services LP
Shreyans Gala, Manager, Center for Financial Services | Deloitte Services LP

With each new variant spread, firms have time and again delayed their return to office dates even with vaccine rollouts and strict measures in place. Though the shift to remote work was taxing for many, returning to the office drives its own set of apprehensions. That trend, however, seems to be improving as per Deloitte’s recent Consumer Tracker survey. The survey results show that currently 60% of polled consumers agree that they feel safe to return to work, higher than the 41% surveyed in May 2020, and generally in-line with the 57% surveyed in November 2021, right before the Omicron variant spread.¹ On the other hand, Deloitte’s back-to-school survey conducted last summer suggested that four in 10 parents wanted their kids back in the classroom as it would help them return to work²—an interesting finding revealing how decision-making dependency has evolved as we continue life in the new normal.

The data from these surveys is reflected somewhat in actual worker behavior, as well. Swipe data from Kastle Systems shows that the percentage of employees returning to the office reached 40.6% in December 2021, the highest level since the pandemic began (see figure below).³ However, owing to the year-end holidays and the most recent Omicron variant pestering return-to-office plans, office visits plunged to about 17.5%, then rebounded to 36.8% in no time.⁴

Percentage of office employees swiping back to work

Note: The Barometer reflects swipes of Kastle access controls from the top 10 US cities, averaged weekly.
Source: Kastle Systems – Back to Work Barometer

Interestingly, cities in Texas—Austin, Houston, and Dallas—have been consistently clocking the highest office swipes among the top 10 US cities.⁵ In the second half of 2021, swipes in these cities were hovering around the 50% mark—one of the reasons for this could be the in-office nature of work in the energy companies in these cities. In comparison, New York, Washington D.C., and San Francisco haven’t quite picked up in terms of office visits⁶—possibly the nature of work of tech-centric and financial services firms makes it easier for employees to work remotely. Overall, though the gradual return to office was interrupted, the impact of the most recent variant was short-lived, suggesting the longer-term upward march has some resilience.

This longer-term optimism is perhaps reflected in the fact that the performance of the US office sector certainly has exhibited positive momentum. For example, office property sales volume ticked upward in all four quarters of 2021 to close to $140B for the year, slightly falling short of the prepandemic 2019 volume of $144B.⁷ In terms of pricing, the average sales price for office space stood at $303 per square foot (psf) in Q4 2021, 4% higher than the $290 psf in the same quarter of 2019.⁸ The office market also witnessed four consecutive quarters of leasing volume growth in 2021, led by Big Tech companies that have increased their occupancy by an aggregate 9 million square feet since the pandemic.⁹ Finance, law firms and insurance tenants followed suit, and life sciences also saw continued growth during Q4 2021.¹⁰ Leasing activity increased by 9.2% in Q4 2021, bringing quarterly volumes to 71.3% of prepandemic rates with 5.4 million square foot of net absorption in the last quarter, the first time since the onset of the pandemic.¹¹

For stakeholders, there’s a lot to ponder on:

As the upward trend continues in the coming months, there is a lot in store for tenants and landlords to consider, especially in how they reassess their strategies based on various cities in which they operate.

• For tenants: As the office space sector gears for a more hybrid work model, it hasn’t been as easy for employers to convince their employees to return to work with a considerable amount of ambiguity. The real struggle has been to create that sweet spot and reinvent their work strategies—hybrid work has been beneficial in attracting talent but raises concerns over culture erosion. Most tenants are looking for next-gen offices that support productivity, safety, tech collaboration, and well-being.
• For landlords: The sand in their hourglass is running down faster. The key factor for landlords might be to differentiate between traditional versus amenity-filled assets and reinvigorate their space offerings to fulfill tenant demands. Customization and flexibility are the keywords that can help landlords plan to move away from traditional workspace offerings, while keeping cash flows and liquidity in place. If not reassessed swiftly, their space might not get visited or might be the last one to be considered by tenants.

The continued uncertainty around the return to workplaces has proved to be beneficial for proptechs too. In our 2022 commercial real estate outlook, we talked about how real estate stakeholders can leverage proptech offerings to enhance their own offerings to deliver on the end-user experience. The times ahead could be interesting as physical real estate seemingly would be back in action – reinvented and stronger.

Stay tuned to read more about our thought pieces on the “Return to Office.”

Endnotes

¹ Deloitte Global State of the Consumer Tracker, accessed March 2022
² 2021 Deloitte back-to-school survey, July 2021
³ Kastle Systems – Back to Work Barometer, averaged weekly measuring swipes from top 10 US cities, accessed February 2022
⁴ Ibid.
⁵ Ibid.
⁶ Ibid.
⁷ Real Capital Analytics, accessed January 21, 2022
⁸ Ibid.
⁹ Lynn Pollack, “Office leasing is up 50% from its Covid-era trough,” GlobeSt, January 12, 2022
¹⁰ Q4 2021 US office market statistics, JLL Research
¹¹ Ibid.
¹² Deloitte 2022 commercial real estate outlook, November 2021

QuickLooks are regularly published articles from the Deloitte Center for Financial Services about technology, innovation, growth, regulation, and other challenges facing the industry. The views expressed in this article are those of the author and not official statements by Deloitte or any of its affiliates or member firms.

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