Half of big multinationals plan to cut office space in next three years

About half of large multinationals are planning to cut office space in the next three years as they adapt to the rise of homeworking since the pandemic.

A Knight Frank survey of executives in charge of real estate at 350 companies round the world that together employ 10mn people found that, among major groups cutting their footprint, the largest number was aiming to reduce space by 10 to 20 per cent.

“Better but less space is probably the strap line for the larger organisations,” said Lee Elliott, a commercial real estate expert at Knight Frank. “It is not the death knell of property markets because what you are seeing is a shortfall of supply, and therefore an increase in rents, for the prime buildings.”

The prospect of big companies making further cuts to office space has prompted worries about the future of older buildings and unpopular locations, as the commercial property market negotiates a painful downturn prompted by higher interest rates.

Nearly half of the companies surveyed are also planning to change their headquarters in the next three years. However, a majority of smaller companies are planning to expand their office space.

Elliot said many companies had paused real estate decisions in the past three years, waiting to assess post-pandemic working habits. Many would still have to wait for their leases to expire before making changes, he added. 

“There have been lots of people talking up change, but we haven’t seen a lot of evidence of it. I think we are now at that tipping point,” he said. “Change in the occupier market is a 3-6 year play, not a 3-6 month play.” 

Companies are taking different approaches to working from home. BlackRock, the investment manager, last month ordered all employees back to the office four days a week, following JPMorgan’s decision in April to ask senior staff to work in person full time.

Roughly a third of companies have opted for fully or mostly in-person work, according to the Knight Frank research, which covered companies worldwide in industries ranging from tech to financial services. The majority, or 56 per cent, of companies have settled on a hybrid policy, while about 10 per cent plan to be mostly or entirely remote. 

Following a round of lay-offs, ride-sharing group Lyft in April reversed a policy to allow fully remote working and told employees to come back to the office part-time later this year. 

A Savills study predicted that US cities like San Francisco and Washington DC will have the most surplus office space in the next decade, while the Asian market will be tighter and Europe will “sit in the middle of the pack”. 

“This isn’t about offices just becoming empty due to some cities seeing lower return to work levels post-pandemic. It’s about how long-term economic, demographic and development trends interact with working patterns,” said Savills research associate Kelcie Sellers. 

In London, companies agreed a record number of office moves last year but took less space than the pre-Covid average, according to data from Cushman & Wakefield.