Do you really need all that office space?

Even though vaccination rates grow, companies still don’t know when, how – and in some cases, if – workers will return to their pre-Covid office routines.

Google data shows this workplace activity in London, New York and San Francisco is at half of what it was before the pandemic.

June investigation by the London Chamber of Commerce of 520 business leaders found that among companies whose employees can work from home, half expect workers to stay remotely five days a week, even after Covid.

When Apple CEO Tim Cook announced plans to return to the office three days a week starting in the fall, employees emailed him a petition claiming that the company had “actively ignored” the desire of many employees to continue with a full-time remote plan. He said in part: “The past year has given the impression that we have truly been able to do the best job of our lives for the first time, without being limited by the challenges that the daily commutes to offices and to co-located offices in person inevitably make up. “

For companies that choose to require fewer employees to be on-site each day, a question arises: Should managers make the long-term decision to get rid of some of their office space?

Based on our decades of professional experience – one of us is a London-based professor of finance and town planning, the other is an investment manager who focuses on real estate – we believe that for many companies, the answer should be yes.

There are already signs of this change. In New York, for example, office vacancy rate rose 11.3% last year and are now at their highest level in 27 years. This is true even though New York-based companies like JPMorgan Chase and Goldman Sachs were among the most vocal in urging workers to return to the office quickly.

Why have an office?

Economists argue that companies prefer their employees to work in the same place at the same time for two reasons.

First, it facilitates the control of workers. This claim is supported by a lot of reliable evidence, especially for salaried employees (programmers, accountants, etc.), whose effort is difficult to measure. While electronic methods of surveillance work were popular even before the pandemic, skilled labor is difficult to monitor in this way. If a business (or even some managers within a business) relies on closeness and real observation to determine who is working hard, it will be more difficult to move their core activities out of an office.

The second reason companies have offices is to foster unstructured brainstorming. Although this is a well-established notion, there is very little evidence to support the claim that the water fountain talk encourages creativity. While research shows unstructured interactions help people exchange information and create networks, no study shows that it increases the productivity of their business. The desire for unstructured exchanges should not prevent anyone from leaving their desks if their primary concern is productivity. However, while informal meetings are an important part of corporate culture, remote working can undermine it. Therefore, managers need to think carefully about the role informal interaction plays in their team and how working from home will affect them.

These two reasons for having offices – supervision and informal interaction – have always been apparent. However, for many companies, their importance changed after a year of working remotely.

Naturally, the ability of a manager to follow a team working remotely depends not only on the nature of the work but also on the skills of the manager. Not all managers have the skills required to be a good leader of a remote team, but these abilities improve with practice. Many executives have become adept at videotaping meetings and even hired workers without meeting them. So there is an argument that the remote management skills of many people are much better in this area than they were before the pandemic.

Employees have also become more adept at interacting through technology, whether through video conferencing or through platforms such as Slack. Supporting these technologies requires investment, but the greater cost of moving to remote or mixed working – the cost of adopting the new technology – has already been paid. No one should engage in long-term remote work because they want to recoup the sunk costs of moving online due to the pandemic. However, the pandemic has irreversibly reduced the cost of switching to remote working and made that choice cheaper. This means that it now becomes easier to enter and exit remote work when convenient or necessary.

Together, these forces lead most businesses to conclude that there will be more activity online. Although survey results vary, some academic estimates suggest that about 20% of working days will be spent at home. This suggests that offices will only need about 80% of their capacity before the pandemic.

Factors to consider if you plan to reduce space

The following factors should guide businesses when considering not only how much square footage they will need in the future, but also where to locate that space. These decisions go hand in hand, as size, location and costs are interrelated decisions when planning offices:

Employee attitude.

Surveys show that most office workers actually want to go back to an office, but only two or three days a week. This suggests that providing an attractive workspace for the most talented people will require less space than in the past, as all employees are unlikely to be there on the same days. This suggests that the quality of space should become more important than quantity, and businesses are likely to focus on smaller spaces that offer better services and amenities.

Proximity to clients, clients and amenities.

According to urban economists, modern cities exist for two reasons: 1) Businesses advantage being close to other businesses and workers, which increases wages and profits, and 2) some Approvals (such as high-end retail stores or restaurants, specialty health care facilities, or easy access to services such as carpooling) benefit from scale and are only available in densely populated areas. As businesses move to a hybrid or full work-from-home model, the benefits of being located next to other businesses’ offices may decrease due to reduced density. Being physically close to your customers and coworkers becomes less important when more people are working remotely, so the benefit of having an office in a central business district will likely decrease. At the same time, being close to amenities can be more important. If you go to the office primarily to socialize with coworkers, rather than working headlong at a desk, it’s more important to be near restaurants and parks.

Change travel habits.

In the past, a key consideration in choosing the location of offices was to ensure that they could attract the best people. Since office trips won’t necessarily be frequent, more people will live further away from their desks, so key locations will attract more talent from further afield. This will make access to short-distance commuting options (like metro stations) less important and long-distance transportation (like proximity to highways or suburban train stations) more valuable for offices.

Office design.

Increasingly, attracting the best talent will not depend on the location of the office in relation to their home, but in relation to their career aspirations. When choosing to go to the office, talented workers will be drawn to offices where they can work more productively and focus on activities they cannot do at home. This will require less space, but the location and quality of office locations will be critical.

Environmental considerations.

Since the built environment has a significant impact on the natural environment, real estate is an important element of companies’ ESG strategies. Building office towers consumes immense resources; heating, cooling and electrification use resources every day. As businesses reinvent and re-evaluate their physical space needs, the current crisis may be the perfect opportunity to start using office spaces more efficiently. For example, for companies that opt ​​for a hybrid system in days of the week (in which all workers are in the office, for example, on Tuesday, Wednesday and Thursday), the reduced environmental footprint of the heating reduction and air conditioning on the “” days off can be important.

Cost.

One final factor in any decisions businesses will make about office space: Owners may be more willing than ever to renegotiate contracts. This means that even those who were stuck in long-term agreements can now try to rethink how they use office space.

In conclusion, most managers may find that they don’t need as much office space as they used to – and the space they do need will work best for employees if it’s designed for style. hybrid work and close to amenities and long-haul transport links, as locations in central business districts become less valuable.