Era of the office squeeze coming to an end

Offices seem to be moving away from the hot desking trend in favour of bigger spaces.

Big companies are moving on from the era of jamming staff into ever tighter slots and expected to start expanding their space requirements, according to real estate agency CBRE.

After a decade of hot desking and activity-based work, which have allowed occupiers to take less space, top companies are returning to more spacious offices.

CBRE head of office research Tom Broderick said there was a big switch in the market, which was now filtering through to the top end.

“The trend had typically been that smaller tenants have expanded, while larger tenants have contracted. However, the 2024 data suggests the frequency of contraction at the larger end is decreasing, which might be an indicator that the tenant right-sizing phase is coming to an end,” he said.

Mr Broderick said tenants had been densifying since 2014, with companies opting for fewer square metres of space per employee. At first this was due to companies using activity-based working and hot desking, but after the pandemic it was sparked by lower office attendance due to working from home.

But Mr Broderick said there was a limit to how dense a workplace could get.

“We believe that we are close to that limit and that tenants will have to start growing footprint with headcount once again. Signs of this are already evident, with our data showing that contractionary activity has been decreasing in frequency since early 2024,” Mr Broderick noted.

For tenants with spaces larger than 3000sq m, the average contraction rate has reduced to 13 per cent this year, a notable decrease from the 21 per cent contraction rate observed in 2023.

In the 1000sqm-3000sq m size bracket, average footprint growth of 5 per cent has been recorded, compared to a 1 per cent drop last year.

CBRE also analysed the change in face rent per square metre of all tenants that made a relocation decision in the first half of 2024, compared to 2023.

CBRE head of office leasing Tim Courtnall said the data showed that the typical tenant was willing to pay a 9.6 per cent higher rent in the first half of this year.

Of the decisions made this year, 70 per cent involved an upgrade to a better building; 15 per cent were to an equivalent building; and the remaining 15 per cent were downgrading.

“Clearly occupiers continue to have a bias to upgrading their premises to improve office attendance, attract top talent, improve ESG credentials and enhance their corporate image. An appealing workplace is also recognised as a key driver of collaboration, productivity and innovation,” Mr Courtnall said.

He said that despite some uncertainty about growth over the next three to five years, companies were unwavering in their pursuit of better-quality office buildings across the country.