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The New Normal

By: Michael Hoban

Brokers Adjusting to Hybrid Office Market

As another Labor Day came and went without the hoped-for return to office, companies and those in the real estate industry have had to reluctantly accept the reality that the Monday-through-Friday, 9-to-5 office world is a thing of the past, and that hybrid work will be the new normal going forward.

While the office is far from dead, substantial space reductions for Fortune 500 companies make headlines on a nearly daily basis. Tech companies and banks like JP Morgan Chase and Wells Fargo are shedding hundreds of thousands of feet of space, and the trend is expected to continue in 2023 and beyond. According to the BOMA International COVID-19 Commercial Real Estate Impact Study released in October of 2022, over half of the more than 1,200 U.S. commercial office space decision-makers surveyed indicated that they were likely to reduce the size of their workspace—with 30% of that group stating that they would reduce space by 25%-100%. Meanwhile, 36% of firms said they were planning to maintain or increase their office footprint. The study also indicated that both employers and employees are supportive of hybrid work, with over 60% of both groups expressing a desire to be back in the office at least three to four days per week.

All this uncertainty in the office market is presenting challenges for brokers, as companies rethink their work routines and office layouts to best meet the needs of the evolving hybrid workplace.

“Three or four years ago it was a lot easier to help a tenant come up with their square footage needs,” says Bo Hargrove, SIOR, partner at Rich Commercial Realty in Raleigh, N.C. “But that’s changed a lot as companies try to grapple with how much space they really need. They’re tired of seeing empty offices but know they still have to provide a place for people to work.”


Hargrove says that while there are good leasing deals available for companies in the Raleigh-Durham market, the demand for large blocks of space is practically nonexistent. “There’s a lack of clarity for larger organizations as to what their office footprint is going to be, so they’re unlikely to make any major decisions. They’re either staying put or putting their space on the market for sublease.” Sublease space in Raleigh-Durham skyrocketed to 3.2 million square feet in Q3 of 2022, according to a Colliers office report, up 65% year-over-year. Nationally, there is 230 million square feet of sublease space available—a 90% increase compared to the end of 2019, according to CoStar data.

“There’s a lack of clarity for larger organizations as to what their office footprint is going to be, so they’re unlikely to make any major decisions.”

Tenant rep Matt Sultenfuss, SIOR, managing partner at Avocat Group in Tampa, Fla., says the situation is much the same in his market. While there is a “ton of demand” for small to midsize spaces, there is little interest in the larger blocks. “It’s crazy how many spaces are available if you’re looking for over 20,000 square feet, but if you’re looking for 3,000 to 6,000 square feet, there’s only a handful.” He believes that some of the savvier landlords will begin to subdivide full floors to accommodate smaller users

Despite the reduction in space requirements, most companies are still planning on renewing at the pre-pandemic pace (72%), according to the BOMA survey. Of greater concern to landlords and investors, however, is that 54% would prefer a shortening of their lease agreements from 7-10 years down to 3-5 years. “There’s definitely a drive towards short-term leases,” says Hargrove, “but landlords are now saying ‘no’ to short term, 12-month to 24-month lease extensions, with tenants needing to sign for three-year minimums.”

For companies looking for space, there has been a conspicuous flight to quality in markets across the globe. New or renovated buildings offering a slew of amenities like state-of-the-art workout facilities, daycare, upgraded café and breakrooms, as well as wellness features like upgraded air filtration systems and access to outdoor space, continue to attract tenants. According to JLL’s December 2022 Global Premium Rent Office Tracker, rents for premium office space grew by 4.8% since December of 2021, largely due to companies being able to afford a higher cost-per-square-foot by reducing their overall footprint.


As companies sort out their hybrid work strategies, brokers are adapting to the new normal of the hybrid workspace by digging deeper into their toolboxes. “The broker’s role has become a lot more complex,” says Hargrove. “For a pretty long stretch we were in a landlord’s market, where they were not willing to negotiate much of anything. Now we’re in a definitive tenant’s market, so we’re doing a lot more strategic work in terms of negotiations and leveraged structuring on the tenant advisory side.”

Hargrove adds that there is also a greater reliance on brokers to assist companies with a broader range of decisions, calling upon their experience and local market knowledge of how other firms are addressing hybrid workspace challenges, including HR-related issues such as work culture and long-term business planning. “And most small to midsize companies are really looking to the real estate broker to help them navigate (physical office design), so we’re finding that we’ve got to play that role a lot more than we have in the past.”

With the complexity of the hybrid workplace leasing environment, Sultenfuss says his firm has retained a third-party workplace advisor, CRUX, to help his clients better assess their workplace needs and to determine how that translates into workplace design.

“What we’ve seen most recently is that clients are unsure, and they’re failing to make decisions around what their new way of working really looks like post-pandemic,” adds David George, an Affiliate Member of SIOR and CEO of CRUX Workplace. “What we’re looking at are businesses that had been established pre-pandemic, who have a C-suite of people who have had a success system—a way they’ve always done things,” says George. “That’s what they’re familiar with and that’s what they want to get back to—because that’s how they were successful in the first place. But to change their success system is unnerving to them and a risky decision, which is why they’re not making decisions very quickly at the moment.”

The firm helps companies get a better understanding of how their people actually work, how they can be most productive in a hybrid environment, and how that translates into their workplace design. CRUX then develops an “insight” report for brokers that helps companies make an informed decision on a lease or building purchase.

“Every company has a different need for their hybrid work model, and they help our clients find out not only how much space they need, but to understand why they need that space,” says Sultenfuss, who says that CRUX recently helped a client determine it could reduce its space from 80,000 to 30,000 square feet. He predicts that landlords—other than those with newer product—will be “hurting in the next couple of years, especially with these 2023, 2024 lease expirations. My advice to anybody with a lease coming up for renewal in the next couple of years is hire a broker and carefully evaluate the market.”


Leasing brokers aren’t the only ones facing challenging times in the current market. As office vacancy rates rise (17.6% nationally through Q3 2022, according to Newmark) and building valuations drop (down by 14% from the end of November 2021 to November 2022, according to the Green Street Commercial Property Price Index), investment sales are slowing.

Landon Williams, SIOR, senior vice president, Capital Markets at Cushman & Wakefield in Memphis, Tenn. says he had the best year of his career, but it was frontloaded through the first three quarters. “What we’re seeing now is a bit of paralysis in the market,” says Williams. “Many lenders are steering clear of office product right now. That’s not to say office deals aren’t happening, it’s just that the volume and interest level—from lenders to office asset investors—is quiet right now.”

Like Williams, Justin Fenn, SIOR, GSA office specialist at Marcus & Millichap in Columbus, Ohio, had his best year in transactional sales, but the current market conditions mean putting his entire skill set to work. He says the challenge for buyers seeking value is to find sellers who are realistic. “Sellers think it’s 2021 and buyers think it’s 2008,” jokes Fenn. “I’ve had to talk some sellers down from what their expectations are and show them the comps to see what properties are actually trading for.”

He says that the market has changed drastically since the boom years of late 2020 and 2021, where many brokers were essentially “order takers” for property sales, but he expects to find continued success in a challenging environment. “Now we’re back to a much cleaner market where investors really need brokers. They need our guidance and help to make these deals.”

Williams is optimistic as well, but expects that deal flow will not improve until later in the year. “I fully anticipate a quiet quarter or two in the beginning of 2023, but as soon as the Fed signals that they’re done raising rates, I predict that we’ll see a flurry of activity.”

Sponsored By SIOR Foundation
This article was sponsored by the SIOR Foundation - Promoting and sponsoring initiatives that educate, enhance, and expand the commercial real estate community. 
The SIOR Foundation is a 501(c)(3) not-forprofit organization. All contributions are tax deductible to the extent of the law.


Justin Fenn, SIOR

Bo Hargrove, SIOR

Matt Sultenfuss, SIOR

Landon Williams, SIOR


Media Contact
Alexis Fermanis SIOR Director of Communications
Michael Hoban
Michael Hoban

Michael Hoban is a Boston-based commercial real estate and construction writer and founder of Hoban Communications, which provides media advisory services to CRE and AEC firms. Contact him at michaelhoban@comcast.net