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Current Season: First Draft Live
Between economic whiplash, shifting policies and market volatility that changes by the hour, you need industry insights that cut through the noise. That's exactly why we're launching First Draft Live, a new weekly series that breaks down what's happening, why it matters and what you need to know to do better business.
Join us live on Bisnow.com every Friday at 12:30 PM ET / 9:30AM PT for conversations with the industry's sharpest minds discussing the week's most critical stories, or catch the replay right afterwards — here on your podcast app of choice.
Alright. Welcome to First Draft Live. I'm Mark Bonner, business analyst editor in chief coming to you live from New York. It's Friday, October 31. It's Halloween y'all, but there's no tricks today on the program, but maybe a treat.
Mark Bonner:The office has finally stopped free falling. For the first time since 2019, national office vacancy actually ticked down barely to 22.5%. Attendance meanwhile remains well below pre pandemic levels with most companies still seeing roughly half their workforce in on any given day. And new construction, a rounding era, starts at decades lows with fewer than a million square feet breaking ground in Q2 alone. That's compared to tens of millions in the pre pandemic cycle.
Mark Bonner:So yes, technically the market is recovering, but emotionally, it's still in therapy or maybe just wearing a really good costume. The cubicle's dead. Hybrid is the new default. And what used to be a Monday through Friday ritual is now a choice, one that landlords, CEOs, and city mayors on both sides of the Atlantic are all trying to resurrect. And that's the real story here.
Mark Bonner:It's not where people work, but why they bother showing up at all. That's what today's conversation is about. The reinvention of the office, the psychology, the culture, the money behind its second act. Few people have had a better view of that transformation than my guest today, Jamie Hodari. He built Industrious into one of the world's largest flexible workspace brands, a company that bet early on partnership over leases and community over square footage.
Mark Bonner:Now as CEO of CBRE's Building Operation and Experience division, He's helping the biggest landlords in the planet reimagine what an office is actually for. Jamie Hidari, welcome to First Draft Live.
Jamie Hodari:Thank you for having me. And to your point on Halloween, my favorite of all the holidays.
Mark Bonner:Good. So let's try to unmask this issue then. So for years, we've obsessed over where people work, at home, hybrid, at the HQ. Now we're asking something a little harder today. Why gather at all?
Mark Bonner:No doubt about it. Humans still need to connect, to learn, to collaborate, to belong, to spend money. That never went away and it likely never will. The problem is the office stopped earning that right to some degree. Vacancy at 22 and a half percent, that just isn't a number, it's a mirror.
Mark Bonner:And it reflects a product that perhaps hasn't totally caught up to the people it needs to serve today. So Jamie, what does the modern office still give us that remote work just cannot deliver?
Jamie Hodari:Let me start by saying, I like I I I kinda like your point about for years we were talking about our people back. Are they not gonna be back? Are they hybrid? And and we've kinda reached an equilibrium. Like, you you just look at the data and people are back around three days a week.
Jamie Hodari:And so now there's probably still some remaining debates over exactly what does that look like and but it's to me, there's a luxury now of getting to be like, okay. For the most part, that's solidified. Now the question is, what do they do when they're there? Why would they go there? What are we trying to offer workers in The US in exchange for for for showing up and be and being part of something?
Jamie Hodari:And I think what I would say on that front is that the pandemic kind of revealed that you don't need to be in the office to be productive in the narrow sense. And so that that was, know, for many companies, that was their primary argument for why you had to come in. You get you get work done here and you don't get work done at home and that's just been disproven left, right, and center. Right. So, that opens the space now for for something different.
Jamie Hodari:We should say you're coming in to feel connected to the institution you're part of. Right. To unlock creativity, to unlock connection to your colleagues, to unlock your own sense of connection to your work. But it is a more ephemeral, I think, I would argue much more deep and much more meaningful set of things, but it is not, you know, hours of labor input to widgets of labor output because the office has not proven to be especially central to that particular equation.
Mark Bonner:Right. And the statistics kind of have told us now that we're five years beyond the pandemic that, like, on one hand, what was said is you can't be successful unless you're at the office. You can't be promoted unless you're at the office. You can't learn how to grow into middle management or executive level management unless you're at the office. You're not gonna get the big assignment if you're not at the office.
Mark Bonner:And the data has told us that's not necessarily true. It's at least an open question. You can be productive to your point. There have been studies like from McKinsey that have said, actually some of these workforces have been more productive depending on how you wanna measure perspective. Certainly salaries are in question.
Mark Bonner:That's for that's sort of another matter here. But I think the bigger issue that you're talking about here is that like this massive social construct, which at least in, you know in The United States over the last fifty years, we all went to an office or a place of work five days a week. And so really essentially what we're talking about here is we're talking about white collar internet based work. Having to show up at a place that was developed in another era. Some of these office buildings that we're talking about are thirty, forty, maybe even 50 years old.
Mark Bonner:Some of them have been renovated with a lot of bells and whistles. But I think they'll it's it's a fair question to say perhaps society has evolved at a dramatic pace beyond the original design and purpose of what a traditional office building is. And I I wonder, as someone who's lived and breathed this world for many years, Jamie, what you think of that.
Jamie Hodari:I think it's a very fair point. I think what I would say is the the you you I think a lot of that former generation. First, let's just acknowledge when you say 22% vacancy. You know, you this is a giant three fifty million person. You know, the the very big country and when you give an aggregate number, what that can obscure a little bit is really bad offices are really empty and good offices are more full than than in the past.
Jamie Hodari:There is more demand. They have less vacancy than any point in the past. And so there's this really extreme sort of shining of a light on the fact that if you can create a workplace people want to come to, that is more in demand than ever before. And if you're in a location people don't want to go to, if the building has no natural light, it's challenged in a way it never would have been challenged before. So then the question is to your point, okay.
Jamie Hodari:Well, what makes the places that people that work in 2025 and 2026? What makes those places tick? I would say the first is at a philosophical level, the offices that work right now are democratic. They are not built in a coercive top down what's gonna impress the CFO or what's convenient for the CEO way. They're built from a point of view of what does the deputy head of performance marketing want when they walk in that door?
Jamie Hodari:What makes them want to get on the subway, you know, five days a week or at least a few days a week and I think those things, they're softer. They're about being welcoming. They're about enrichment. And I think they're also more about the way offices are run than in the past. In the past, people really talked about office buildings in a static way.
Jamie Hodari:Is it marble? Is it not? Is it this many square feet? Is it this many square feet? And I think we're now in an era where it's much more, okay, know, that that is one of the components, but it's more about when you get there, what's happening?
Jamie Hodari:Are you having interesting lectures at lunch? Is there good food or not?
Mark Bonner:Yeah.
Jamie Hodari:Is the music the right volume? Are you having interesting collisions with people that that you wouldn't get if you were at home? So that would be the other piece that they're that that I think the offices that are really pulling people in. It's not just a question of the physical plant. It's is it being run with an eye to how someone wants to spend their day?
Mark Bonner:Right. And we'll get into amenities and and some of what we're what you're talking about in those class a, a plus, new offices or the or the ones that have been renovated. I I guess the other thing I think about a lot here, Jamie, is that, like, there's been so much focus on workers and what they're willing to do or not do. And you mentioned democratic decision making. Right?
Mark Bonner:But, I mean, the people who make the decisions about office space have decided they need less or none at all. At least that's what the data is starting to show us. I don't think the office is dead, by the way. Right? I I I I see that there is a much value in showing up in person.
Mark Bonner:Five days a week, I don't know. Three days a week could be zero. For some people, maybe, but I I think it's somewhere in the middle, and I think that's what the data is showing us. But if enough people who make decisions about whether or not they need or do not need office or they need less than they needed before or shining shorter and shorter term leases or maybe going away from traditional office into flex, which is something I know you know a lot about, What do you think happens to the $3,000,000,000,000 asset class if those decision makers just continue to make those decisions? Like, do you do you expect that that'll change in some point in time in the future?
Mark Bonner:Like, where's your head at on this from a more macro perspective?
Jamie Hodari:I would say well, first to your point about many are deciding they don't need office at all. I think that's a pretty niche strategy. I would say that the that the vast majority of businesses might be saying I need less square footage. They might be spending the same amount. You know?
Jamie Hodari:What what like, when I was in college, I showed up, and there was a half price sushi restaurant, and I'm in college. So me and all my friends are like, oh, hell yes. And then we ate there a few times, and we're like, oh, no. Like, this is really bad. I think I'm gonna get sick from this.
Jamie Hodari:And at some point, make the decision, I would rather go half as often to the normal sushi restaurant than twice as often to the half priced one. And in the same way, let's say you take New York City, and you could get a giant block of space on Eleventh Avenue or First Avenue. And for those of you who aren't from New York, you're pretty far from the subway. That's kind of a painful commute. You're kind of far from amenities or you could get something on Park Avenue right on top of Grand Central where people can commute in and they walk right into it and there's a zillion restaurants when they walk out their door.
Jamie Hodari:I think a lot of people are saying, I would rather have less space and be in a great building on Park Avenue people want to go to than more space that people don't want. I want a little bit less often of the full price sushi, not more often of the half price sushi. And that, I think, is what what you see happening in the numbers. And and as a result, if you think about New York, there was more square feet leased in New York this year so far than at any time in the last twenty five in the last twenty five years. And that is, I think, what the trend is gonna be.
Jamie Hodari:So the problem is not the $3,000,000,000,000 The problem is for the bottom quartile of buildings, the bottom 20% of buildings. What do you do?
Mark Bonner:Right. I mean, look, New York is a unique place. Right? As has been said before, what happens in New York doesn't necessarily mean that's what happens everywhere else. Certainly, what happens in New York can can ricochet around the world as a point of influence.
Mark Bonner:But even here in New York where I am and you are based, every commute seems like it's a negotiation at this point. Right? Castle data, which I know has been poo pooed by a lot a large quarter of the industry as unreliable, but that's what we've got so I'm gonna use it. Current data is showing that office attendance is hovering around 45 to 50%. And so in this economy of time and attention, the office has become a subscription model and people are deciding whether or not they wanna redo.
Mark Bonner:Renew. And you you brought up some amenities. You know, companies are danging dangling perks. Team days, food programs, gym memberships, ice baths, pickleball, paddle, ping pong, beer on tap, Quidditch clubs. You know, anything to make the trip feel more worthwhile.
Mark Bonner:Right? What makes a person trade an hour of their life at home for an hour of life in office, Jamie? What moves the needle as far as you can see it?
Jamie Hodari:I think at a fundamental level, and companies need to be absolutely clued into this, a person has to believe this enriches my life in some way. And that can be very broad. That can be this will help me move my career forward. That can be this is what gets me out my front door. And when I didn't leave my front door, the problem is I also didn't go to the jazz concert in Central Park.
Jamie Hodari:I also didn't meet up with my friends after work. And so the the office is also a conduit to a broader life in a city that I don't get if I never leave my front door. There's, again, connection to colleagues, connection to your work. Like, the the the it's rather broad, and I think if you really zoom out, the one commonality would be my life is better off in some way, for at least a few days a week showing up and doing this. And I think the good news is I I would argue the vast majority of Americans are not saying necessarily I wanna go five days a week but but the vast majority of Americans are saying my life is better off getting to be around other people, getting to be in the work a few days a week than having to spend all day every day for the next decade of my life, you know, sitting in my living room.
Mark Bonner:Totally. And I I I hear that loud and clear, I think a lot of people do too. That that makes perfect sense, and it's true. That that that's a slight pivot though from return to office now. Right?
Mark Bonner:Which we've seen from a lot of the Fortune 100 or Fortune 500 companies, you know, forcing people to return or you don't work here anymore. Right? But what you're talking about is something that let's just call it return to presence. Right? That's a cultural pivot.
Mark Bonner:It's not a policy. That's a value. But that's also a value that probably takes a longer time to knead into the bread. Right? I mean, how how do you cross how do you cross the Rubicon on that if you're a company and you really wanna get back to the office, but you don't wanna force people back?
Jamie Hodari:One thing I mean, I think it's a great question. And one thing I would say is there's probably 3,000 Americans, maybe 5,000, having to make a decision about workplace policies. There's a 100,000,000 Americans having to say, okay. What does this mean for me? What what what do I want out of this?
Jamie Hodari:And so the question of return to presidents and what do I want out of my day at work is a much more pervasive, much more much more deeper cultural question than what a few heads of real estate are deciding they're going to sort of, you know, set as their policy or not. And I I would note the policies are not always adhered to. Part of why I just say people are coming in three days a week. Is there some evidence that even when companies say you gotta come in five, people are tending to come around three anyway. So, it's it's kind of easy to say regardless of what a company stated policy is, people are mostly coming in Tuesday, Wednesday, Thursday, and they're mostly working from home on Friday and, you know, choose your own adventure on Monday.
Jamie Hodari:The the for me, like, the most deeply personal one is about the the isolation crisis we have, and just the the fundamental reality that people need weak ties in their life. They need to be connected to group people. They need to see other people. They need to be exposed to new ideas. They need to be exposed to new music.
Jamie Hodari:They need to be challenged in some of their comfort zones. And I think the office is a really when it's done right, is a really wonderful place for that. And I think we all have memories or moments we can look to and say, my life was a little less narrow, a little less small for the opportunity to get to spend time with other people who I found smart, who I thought were were you know, I wanted to learn from. And for better or worse, this is the main once you're out of college, that's the main venue in American life for getting to have that in your life. And what a blessing that we get to have it in our life.
Mark Bonner:If you're just tuning in, this is First Draft Live. We're with Jaime Hodari talking about the office's identity crisis, why we still show up, what makes it worth the trip? And whether this $3,000,000,000,000 asset class is reinventing itself or just nursing a hangover. If you have questions for Jamie, put it into the chat. We'll get into as many as possible.
Mark Bonner:Jamie, let's talk about flex for a second. Because, you know, I that that's been a major component of your focus in this industry over over the years. Today, roughly 60,000,000 square feet of US office spaces run under management or flex agreements, triple what it was five years ago. It's the Airbnb ification of office, if you will. Shorter, lighter, more service led.
Mark Bonner:But, you know, that that agility comes at a cost. Choppier cash flow, new valuation math, and then that uneasy marriage of hospitality and traditional office. Is Flex finally the grown up model for office, or is it still a stop gap in search of stability?
Jamie Hodari:For me, and maybe I'm a little biased, I think that growth rate you described is incredibly healthy for the real estate industry and for people who show up in a building, you know, for two reasons. One is, the main reason for that growth, I think, is not about flexible lease terms. A landlord can offer a traditional lease on three year terms if they want to. It's to your point on service, it's a productized workplace offering. And what used to be the case is that, you know, you have big companies that might have 10,000 people in Chicago, but they might have 41 people in West Palm Beach.
Jamie Hodari:They might have 70 people in Plano, Texas. And my god, was that a dismal office experience when you worked for a small company or one of the far flung outer reaches of a big company. There is nothing you can do to make a 40 person space vibrant. It's basically a bunch of desks and two conference rooms. You can't have speak easy rooms and really elegant rooms to have pitch meetings in and a food and beverage program and a music program and, you know, lunch and learn, then lectures at lunch and book signings in the evening.
Jamie Hodari:You kinda have to get to a thousand people to do that. And so that growth of flex by and large for me relates exactly to the conversation we're having, which is people have to wanna get out their front door and have a workplace experience that moves them. And for teams of under, let's say, 500 people, that's better served in a setting where you have some shared infrastructure and so that to me is the by far the largest driver of that demand growth is basically all the small offices in the country moving to my people are going to be happier with some shared sort of structure than if we just try to lease some space for 30 people and throw in a couple of card
Mark Bonner:So one of CBRE's latest survey says 85% of tenants rank transit access as their top driver for this decision. 75% site food and beverage. You know, it's less treadmill at noon and more get me home in twenty minutes. Right? In Manhattan, as you brought up earlier, trophy assets are thriving again.
Mark Bonner:Leasing hit six six point nine million square feet in Q2. That's the highest since 2011. But mid tier space is still bleeding. There's still fragility underneath the top line. People will pay for energy.
Mark Bonner:They'll pay for daylight proximity. It doesn't seem like they're gonna pay for ping pong. I guess what from what you see, Jamie, what does a commute worthy office look like now? Design, tone, experience? Like, what do you have to do here?
Jamie Hodari:I'm gonna give you my wish list, but I have to acknowledge, like, the not everyone gets this. I would start with transit access. I mean, you're right. There's just, I think, the biggest trade off, but we see with industrious, for example. People who are the industrious that they work at is like two blocks from their home.
Jamie Hodari:They basically do go five days a week. So, you have facial evidence that there aren't like people don't actually prefer to work in their living room. It's the commute is the barrier and if there were no commute, that that is the primary trade off and you said that earlier in this.
Mark Bonner:Yeah.
Jamie Hodari:You know, sort of podcast is that it's it's you gotta earn the commute. So number one for me, it would be, it's really nice if you get off the train from New Jersey and your office is is two minutes away. I think the next is to me pizza parties and ping pong and all that stuff. They are a stand in for something more meaningful, which is, are we trying to create moments, environments that kept people up from their laptop and interacting with each other? So the pizza is not valuable in and of itself.
Jamie Hodari:It's valuable if people sit around the pizza and ask how their weekend were and finally learn the name of that woman from accounting they've seen for the last three years. That is very meaningful. So if what you said if I looked at an office, how do I know if it's vibrant or not? How do I know if it's commute worthy or not? If people are looking up at each other, if people are interacting with each other, if people are learning from each other, I don't care what the lighting is.
Jamie Hodari:I don't care whether the windows are 13 feet or 10 feet or whatever. That's a commute or the office. And if everyone is sitting isolated and heads down, that they could have done at home.
Mark Bonner:Let's take a couple of questions from the audience. Given that RTO mandates are still a reality for many organizations, how should we interpret occupancy metrics often used as evidence that employees want to return to the office when in fact they don't have a choice?
Jamie Hodari:This is where I, this is what goes back to what I was saying before is that I think there are extreme examples where like literally you get fired the next day. If you don't go five days, okay, those people are gonna go five days a week. But a lot of companies that had nominal relatively strict policies. The actual days a week that people are in doesn't look that different from ones where people are given their own choice. Because at some point it's just becoming so overwhelmingly true that you have people who never want to go to the office at one extreme outlier.
Jamie Hodari:You have people who want to work for their living room for the next decade at the other. Lowe's might be 3% of the country and the vast majority of people want to go two, three, maybe on certain weeks, four days a week, and don't want to go five days a week and you see that regardless of what the overlying policy is.
Mark Bonner:Okay. Couple more questions. Is there any data that you've seen, Jamie, on how companies are doing that have implemented a 100% return to office?
Jamie Hodari:No. No. Data on does that impact the bottom line? Does that impact productivity? I I have a personal preference for for slightly more, you know, open workplace policies.
Jamie Hodari:But I can't tell you definitively one way or another what the business impact of a five day a week RTIs. I do think for what it's worth, the businesses that have had the confidence to do that, the businesses that have chosen to do that are often highly successful businesses that are in highly paid industries that feel I'm JPMorgan. I can do this if I wanna do this. So I think that would confound some of the variables.
Mark Bonner:I've I've looked at some of the data and then look, the the truth is it's a little early to say. And yes, like the huge caveat which you just mentioned, which is we're talking about major companies that pay incredibly large above average salaries. You know, whether or not it's more productive or it works in terms of their bottom line, I think we need a little more time there to really understand the difference. I think the real big question is for all of the companies that are nowhere near the fortune 500, which are the majority of companies in America, middle market companies that have about a 100 employees or less. And I think there needs to be more data done on that.
Mark Bonner:So we'll have to see.
Jamie Hodari:One thing I would say on that point about data is this is where I am so excited about the next evolution of the office and the missing piece of the conversation we're having, which is in business, you manage what you measure. And right now, the state of physical products is we're far behind digital products and certain business processes in terms of what we measure as outputs. Basically, people do surveys of employee sentiment to figure out if they like the office or not and some very rudimentary productivity metrics which I think in the long run. Yeah. Are going to be ambiguous.
Jamie Hodari:If I were running a 100% company, I would say, why do we have an office? For that company, it might be, I wanna increase trust between my people. I wanna increase the number of ties someone has with the business and I wanna increase the amount of brainstorming or creative sessions people have where they're not just sitting in eight straight hours of Zooms. And then you should measure those three things. Like most what what what I would do as most of these companies is not say productivity in the grand sense, but what is a series of real world outputs that matter to me as a company, And I want to spend the money to have a workplace and then hold us accountable for saying, did we actually see movement in those metrics that I've decided matter to me in this business?
Mark Bonner:So, Luke, one more question from the audience. It's a good one. I think it's kind of related to what you just said, Jamie. You know, I know a part of your remit at CBRE is to look beyond the horizon a little bit and to see what come what's coming next for the market. And so this question from our audience is, do you think we will work differently in the office in the future?
Mark Bonner:If so, what might that look like?
Jamie Hodari:I think that we will work it's so hard to make pronouncings out of the future. Here's a couple of things. Number one, I think the trend is in the direction of a more peripatetic, episodic, stitched together version of work. We've moved away from a world where you badge in, you go to the 30 Ninth Floor, you sit at Desk 51 for nine hours, you go down, you go home. People work for two hours, they go to a yoga class in Bryant Park, they go back for two or three hours, they might meet a friend for lunch, they might do their grocery shopping and come back for one final call, and they or they might do their one on one in a park nearby.
Jamie Hodari:That movement, that sense that my work is stitched together with other parts of my life is profoundly meaningful and energizing to people and I think you will see more of that. And then the second is, it is, when we talk about hybrid, people tend to mean a hybrid policy of work from home and, and going into office. But I think workplaces are gonna become more and more hybrid in the sense that you are going to be a combination of in person with some set of people and half the people will be dialing in from somewhere else. And so we just have to get better and better at that modality. Because right now, that's a weak part of office.
Jamie Hodari:That that how do you make it work? For the six people in the room together and the four that are dialing in Yeah. The technology is not yet there to make that a frictionless, wonderful experience.
Mark Bonner:So let's end on this because this is a little bit more forward gazing. Look. Let's be honest here. The macro picture here is sobering. Effective rates still down 12% from 2019.
Mark Bonner:NOI off 30 to 40% in some markets. Office CMBS delinquencies near 6%, the highest in a decade. But under the surface, something more interesting is happening. The sector is shrinking. And maybe that's the point.
Mark Bonner:Less volume, more intention perhaps, fewer buildings, maybe better buildings. Maybe the office isn't dying. Maybe it's molting. Are we witnessing a comeback or a controlled reinvention in your perspective, Jamie?
Jamie Hodari:I think you can say definitively the office is molting the bottom. I said 20% earlier, but let's say the bottom 10% spaces that are really unusable as an appealing workplace people would want to come to. And I would argue that's a good thing. You want to mold products that don't have product market fit and that don't serve a need for customers. And buildings are not worth something if they're empty.
Jamie Hodari:Like, the bricks and steel are only meaningful when people use that building and make it come alive. So I think it is okay to mold that, and I think that will be replaced by, again, slightly more dense central workplaces people want to go to that are vibrant. And that also is a great thing cause you are gonna have more people who walk in every day or three days a week and say I'm in a place that gives me energy and a place that, to my earlier phrase, enriches my life. So good riddance, if you molt the stuff that was not working for people, grinding them down, was making them feel anonymous, was making them feel demotivated, and you replace that with stuff that makes people feel enriched and enlivened.
Mark Bonner:I'm so glad I got office molting trending in commercial real estate in this program, Jamie.
Jamie Hodari:It's good a word. I like that.
Mark Bonner:That's our show for today. Jamie, thanks so much for taking the time.
Jamie Hodari:Thank you.
Mark Bonner:Got big Halloween plans?
Jamie Hodari:Are we still on?
Mark Bonner:We're still live, dude.
Jamie Hodari:Oh, I have a three and a one year old, and I'm so excited to take them trick or treating because I'm I it's my favorite holiday, and now I get to, like, experience it through their eyes again. And and and it's just we we live in Brooklyn, and it's, like, it's the best day of the year.
Mark Bonner:Good. If you miss any part of this conversation or want to catch earlier episodes, you'll find every show on biznel.com or in your favorite podcast feed. Just search First Draft Live. We'll be back next week. Until then, have a safe, spooky Halloween, and maybe don't check your office vacancy rate in the dark.
Mark Bonner:This is First Draft Live. Go Tigers and have a great weekend y'all.