Future offices will emphasize collaboration and amenities
The number of empty offices in the U.S. has hit a record high. This year, according to IBIS World, the office-vacancy rate averaged across the nation is about 17%—even higher than the 16% vacancy rate recorded during the 2008 financial crisis. This stress on the commercial real estate sector has been fueled by high interest rates and pandemic-related shifts in the workplace, including an increase in remote and hybrid opportunities.
As C-suite teams grapple with the current big issue—allowing employees some level of virtual work versus demanding a complete return to the office—it’s clear the traditional office is at a crossroads. So, how should workspaces evolve to reengage employees who prefer working from their living rooms while also addressing a mounting real-estate crisis?
Michael Shvo, founder and CEO of luxury commercial real estate development company SHVO, visited the recent Fast Company Innovation Festival to share his vision for the office of the future. Having helped define the high-end residential experience (with a portfolio of iconic properties in cities across the United States), Shvo explains why he thinks high vacancy rates will offer opportunities to cities, investors, and developers alike. Here are four key takeaways from the conversation. (Scroll to the bottom to watch the entire panel discussion.)
1. The best collaborations are in person.
During the last decade, work trends have shifted from the collaborative, open-office models popularized by tech giants like Facebook, Google, and Apple, to the Zoom-centered, work-from-anywhere environments accelerated by the pandemic. Shvo is clear about his preference. “I have a strong belief that for people to collaborate, they have to be together,” he said.
Shvo’s idea of in-office collaboration is built on creating physical spaces where teams can remain productive—and is a central component in the office spaces that are part of SHVO’s $8 billion commercial real estate portfolio. “Our job is to earn the commute, so you have a reason to get out of your pajamas, out of your kitchen, and come to a space where you’re with other people,” he explained. “The office is not dead, but the office is changing.”
2. Renew old offices.
Creating work environments that attract employees, Shvo maintained, means rethinking how these spaces look. Having collaborated with world-renowned architects (including Lord Norman Foster and Peter Marino), he understands that a modern office should be more welcoming—a place that invites people to be comfortable and at their creative best. “It needs to feel that there are spaces where you can entertain people,” he elaborated. “If somebody wants to work in different environments, they’re not only locked in their floor or in their office.”
At the same time, Shvo—who has developed a constellation of ultra-luxe hotels and residential buildings across the country (including the AMAN New York and Mandarin Oriental Residences Fifth Avenue in New York)—wants to bring a similar list of services and amenities to his commercial properties. “The same ideas we used to build there, we’re implementing in the office buildings,” he said. “The same services you’re getting in the Mandarin Oriental Residences in New York, you’re going to get at 530 Broadway or 711 Fifth Avenue, which are big office buildings in New York. It no more feels like an office.”
3. Offering a turnkey solution.
Shvo noted that not all companies are downsizing their offices. In fact, companies in industries such as private equity and hospitality are actually expanding their workplace footprints. As companies look for new space, they’re challenged with building out the offices they rent into the workplace that they—and their employees—need.
Traditionally, it’s been the tenant’s job to manage that build out with funds from the landlord. That scenario makes no sense to Shvo. “If I’m a fashion company, why am I now in the construction business?” he said. “It’s kind of insane, right?”
Shvo has created a turnkey solution. His company works closely with new tenants to better understand what they want in their workspaces—and, within 30 days, create ready-to-work offices. “The idea is creating customizable space for specific tenants and handing them the keys, so they don’t have to go through the pain and suffering of being in the construction-and-design business,” he said. “Companies don’t want to waste time on things that they’re not specialists in.”
4. Potential rewards for deep-pocketed developers.
There are several trends Shvo has observed in the commercial real estate space—all of which could mean opportunities for developers with long-term visions and a lot of cash. For starters, many buildings with floors of empty office space are likely to stay empty because they’re simply obsolete. “There are millions of square feet that have to be demolished. There is no other solution,” he said. “They just don’t work anymore.”
Another is the rapid rise in interest rates that has left some commercial-property owners struggling to make loan payments. In both cases, Shvo expects to see a lot of properties changing hands in the coming years. And that opens up big opportunities for developers who are well positioned to move quickly to snap up the best deals. “I think this is one of the greatest opportunities if you have the ability to buy buildings in cash and not take on debt right now,” he says. “Because we’re never going to see these assets and these prices again.”