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 the trends and predictions for the office market in 2022.
Dr. Hardin is a real estate and finance professor at Florida International University and holds a Knight Ridder Endowed Eminent Scholar Chair. He is co-editor of the Journal of Real Estate Research and a member of the board of directors, as well as past president, program chair and director of publications for the American Real Estate Society.
Dr. Hardin also serves on the editorial board of International Real Estate Review, Journal of Property Research and the Journal of Housing Research, as well as the editorial review board of The Appraisal Journal. He is past editor of the 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 that the office market will be facing in 2022?
I do not work in this space directly. In short, the industry is too optimistic. We will not have office utilization near pre-pandemic levels anytime soon. Even if one is talking about four days in office and one remote, then that is a 20% reduction with reduced need for any amenities, food and other service tenants, etc. In many areas, daytime populations will remain lower than they were pre-pandemic for an extended period. The entire office ecosystem has been impacted, especially in markets characterized by large commute times.
The market signals are incongruous: The Wall Street Journal and others in real estate are touting remote work in places like Boise, while others are saying the office is coming back. These are opposite sides of the same coin.
Q: How have the previous two years transformed the office market?
Second-tier properties in areas requiring long commute times will be weakest. Other non-office tenants (those providing services and food, etc.) will continue to suffer and, since their revenues are directly tied to people in office space, their ability and willingness to pay current rents will decline. There will be no need for a first-floor bakery or restaurant if fewer people are in each day. It is an ecosystem. Reduced need for a food court or food hall. Lower revenue is equated with lower ability to pay rent.
Q: How widespread is the adoption of hybrid work models among tenants and how long-term is this trend?
This is a major trend and will be long-term. Few will be required to be in the office five days a week. One out of five is a 20% reduction in people on-site 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 so in a big way. The trend is unstoppable.
Q: What innovations will enable a safer, more streamlined and more comfortable office experience going forward?
You will see segmentation continue. In places like Miami, you are seeing very high-end (but smaller) properties being developed in close proximity to senior managers, private equity managers and the wealthy. These people may be able to work remotely, but may not want to work from home the majority of the time. They do not want a commute and they are willing to pay premium for premium space. This is a niche market.
Q: Are there any other insights that you would like to share?
No one really knows how the trends in work will play out. I always look at the messenger as the messenger will come with a point of view and is likely vested in that point of view.
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