Expect RTO Policies to Change As Leases DoExpect RTO Policies to Change As Leases Do
Data from the commercial real estate industry – and from workplace leaders – underscores a link between hybrid work and lease duration.
December 12, 2024
A new survey from the platform-building company Resume.org shows a definite link between an employer's return to office policy and their lease status. Resume.org surveyed 900 respondents at companies that have implemented an RTO policy following a remote work period, and while the usual suspects (company culture, collaboration) lead the reasons for imposing an RTO policy, lease status is a factor. Per the study:
Two-thirds of surveyed companies currently lease office space, with nearly half of these leases extending to 2028 or beyond. For over half of the companies leasing office space, current lease terms influence their RTO policies, with 16% reporting a major impact and 38% some impact.
When their lease expires, 23% of companies plan to decrease the amount of office space they rent. Of these companies, 32% will reduce the number of required days in the office, and 8% will stop requiring employees to go into the office.
Granted, approximately one in four companies planning to revise their RTO plans once they have less office to return to does not indicate a majority, but this strategy does indicate that "we paid for this office, let's use it" is a factor that companies do use when assessing the best use of resources both human and otherwise.
Expect these assessments to continue for a few years. Global commercial real estate advisory firm Cresa recently assessed the state of the commercial real estate market and found that we're at a midpoint in a commercial real estate re-adjustment:
According to lease data available through CoStar and Cresa, leases signed before the start of 2020 are just over halfway through rolling.
The biggest driver of decreased office demand is remote work. Many companies have instituted different scenarios for addressing hybrid and/or remote work. With approximately two plus years since many workers returned to the new normal, return-to-the-office has generally been baked into many organization’s space planning. These levels are somewhere between 60 and 80 percent of pre-Covid levels. With three to four more years of pre-Covid signed leases slated to roll, it’s likely additional office space will continue to be shed.
For those of us hoping to unambiguously resolve the RTO debate -- it looks like we still have a few more years as companies assess the costs, both in terms of talent retention and real estate.
