Expert Insights: William G. Hardin discusses office market trends in 2022

William G. Hardin, professor of real estate and finance at Florida International University

For our latest interview in the Expert Insights series, we had the pleasure of chatting with Dr. Hardin about office market trends and forecasts in 2022.

Dr. Hardin is a professor of real estate and finance at Florida International University and a Knight Ridder Endowed Eminent Scholar. He is co-editor of Real Estate Research Journal and member of the board of directors, as well as past president, director of program and director of publications for the American real estate company.

Dr. Hardin also sits on the editorial board of International review of real estate, Real Estate Research Journal and the Housing Research Journalas well as the editorial board of The assessment log. He is the former editor of Journal of Real Estate Practice and Education.

Prior to his career in academia, Dr. Hardin did small-scale real estate development and had a 10-year career in banking focused on international trade and commercial real estate lending.

Q: What is the #1 challenge facing the office market in 2022?

I do not work directly in this space. In short, the industry is too optimistic. We won’t see office utilization approaching pre-pandemic levels anytime soon. Even if we’re talking about four days in the office and one remote, that’s a 20% reduction with a reduced need for amenities, food, and other service tenants, etc. In many areas, daytime populations will remain lower than before. pandemic for a long time. The entire office ecosystem has been impacted, especially in markets characterized by long travel times.

Market signals are incongruous: The Wall Street Journal and others in real estate are touting remote working in places like Boise, while others say the office is coming back. They are opposite sides of the same coin.

Q: How have the previous two years transformed the office market?

Second level properties in areas requiring long travel times will be the lowest. Other non-office tenants (those providing services and food, etc.) will continue to suffer, and since their income is directly tied to people occupying office space, their ability and willingness to pay current rents will decline. There will be no need for a bakery or a restaurant on the first floor if there are less people every day. It’s an ecosystem. Reduced need for a food court or food hall. Lower incomes are equated with a lower ability to pay rent.

Q: How widespread is the adoption of hybrid work models among tenants and how long will this trend last?

It’s a major trend and it will last. Few of them will be required to be in the office five days a week. One in five represents a 20% reduction in on-site staff and reduces demand and willingness to pay.

Q: Are commercial tenants considering/planning for a long-term reduction in office density?

Yes, even non-profit and state units are already doing this in a big way. The trend is unstoppable.

Q: What innovations will enable a safer, simpler and more comfortable desktop experience in the future?

You will see the segmentation continue. In places like Miami, you see very high-end (but smaller) properties growing in close proximity to senior executives, private equity managers, and the wealthy. These people may be able to work remotely, but may not want to work from home most of the time. They don’t want to commute and are willing to pay more for premium space. It is a niche market.

Q: Are there any other ideas you would like to share?

No one really knows how labor trends will unfold. I always watch the messenger because the messenger will come with a point of view and is probably invested in that point of view.

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Jose C. Birney