By: Tamara Small | This op-ed originally appeared in the Boston Business Journal on July 14, 2021
In March, the Baker-Polito Administration announced it was retaining McKinsey & Co. to help determine what policy changes officials will need to consider after Covid-19. On Tuesday, the administration released Preparing for the Future of Work in the Commonwealth of Massachusetts, which outlined policy priorities strongly supported by NAIOP Massachusetts, The Commercial Real Estate Development Association: the desperate need for more housing and expanded childcare, an updated transportation system and the need for an equity lens in all policy implementation.
But there is a big miss in McKinsey’s report. It’s no secret that office space was hard hit by the pandemic — walking in downtown Boston for the past year has been more akin to walking in a ghost town. But McKinsey’s topline conclusion that the demand for office real estate may fall as workers spend more time in residential areas due to hybrid work, uses employer and employee data from before vaccines were available to everyone, and conflates a hybrid work-schedule with the need for less physical space.
The reality is, there is a lot more optimism in Boston and across the commonwealth than McKinsey’s report would indicate — and these trends are set to continue. On Monday, it was reported that Facebook is seeking to triple its office footprint in Cambridge. Amazon and Google are also expanding, and MassMutual will soon be moving to its new headquarters in the Seaport. Available sublease space, which had hit an all-time high at the end of 2020, is down. Brokers are touring more tenants who are looking to commit to space, and office rents are recovering. For the first time in 16 months, most companies agree that September will mark a return to the office. These are just a few examples of the cautious, but steady, recovery of the office market now under way.
According to CBRE’s 2021 Boston Market Outlook, the office market in Greater Boston is expected to stabilize by the end of this year. Employers are less likely to make major decisions driven solely by remote work. What does this mean for actual office space? It means that while hybrid work is likely to be a new normal (at least in the short term), space will be prioritized for collaboration and community. Businesses are eager to get employees back to the office and are seeking tenant amenities to improve the office experience. JLL’s recently released Q2 report for Office Space in Boston states that total demand across Greater Boston rose 10% in Q2 as large tenants reengaged their searches for space. Not a total recovery, but definitely not a decrease in demand.
That is a far cry from McKinsey’s top line. While employees and employers are looking to enact hybrid models and increase worker flexibility, conflating these attitudes with space needs is premature and harmful to the market, especially given, as the report notes, “Small businesses that rely on commuter foot traffic could be particularly hard-hit.”
While McKinsey notes that both office space and small business impacts are predictions, using out-of-date data at this stage of our recovery as a bellwether for future trends can be harmful, discouraging future investment and making the road for small business success more difficult.
The pandemic has tested every sector of our economy and our lives — and brought many of our societal shortcomings and inequities to light. As we look to the future, uncertainty remains, but the market shows that the demand for office remains.