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Could the Days of the Conventional Office Be Over?

Photograph Source: three6ohchris – CC BY 2.0

The COVID-19 lockdown left many people the world over with no alternative but to work away from their offices, generating a rapid growth in working from home (WFH) as a result.

This has produced radical, and some say irreversible, changes to work practices and their attendant locations, as well as the hitherto characteristic ways people had of travelling to work.

According to McKinsey, “estimates suggest that early this April, 62 percent of employed Americans worked at home during the crisis, compared with about 25 percent a couple of years ago”.

McKinsey’s research found that “80 percent of people questioned report that they enjoy working from home. Forty-one percent say that they are more productive than they had been before and 28 percent that they are as productive”.

Other studies confirm McKinsey’s findings.

A recent study by Morgan Stanley found that only 34% of UK workers who could return to the office have actually done so, and many businesses have announced that they will extend the choice to WFH for the foreseeable future.

Facebook has said that 50% of its jobs will be remote within 10 years; Twitter is letting almost all its global workforce to WFH indefinitely, if they wish; the global law firm Slater and Gordon has relinquished its London office; fund manager Schroders says employees can continue to work flexibly for an indefinite period, as have investment bank JP Morgan and the legal firm Linklaters.

According to federal statistics the US’s real-estate industry is massive, being valued in 2018 at $2.7tn, or 13% of GDP.

The demand for office space is now at its lowest since the 2008 Great Crash, and this does not take into account the cumulative impact of this decline on the restaurants, coffee shops, bars and high-end retailers reliant on office workers’ lunch and after-work spending, as well as falling tax-revenues for city governments.

Corporations are also using the surge in teleworking to reduce real-estate costs significantly.

A case in point is MediCopy, a rapidly-growing Nashville-based medical records company, which added a second office two years ago, and was about to lease a third in June. But since the pandemic nearly all of MediCopy’s 200 staff have worked from home, and the company has given up both of its additional offices, converted its headquarters into a training centre, thereby saving $350,000 a year in leasing costs.

It is estimated that some corporations could reduce their real-estate costs by 30%, and those that opt for a fully virtual office-model could wipe-out nearly all of these costs.

Two further benefit of the virtual office for corporations are:

1) Reducing their level of risk by having employees work in many different locations.

2) Accessing new pools of talent with fewer locational constraints. When Ken Wissoker, editorial director of Duke University Press moved to New York in 2014, along with his spouse who had taken up a position at CUNY Graduate Center, he was able not only to keep his position at Duke, but also become CUNY’s Director of Intellectual Publics. Admittedly Wissoker’s move took place before the current pandemic, but this does not detract from the fact that teleworking reduces locational constraints.

At the same time, it would be premature to pronounce the wholesale demise of the conventional office. There was already a move away from offices located in the downtown areas of big cities before the COVID-19 lockdown.

According to Bloomberg Real Estate Report:

The suburbs are clearly on their way to becoming a favored asset class for offices … Companies that don’t want to cram employees into headquarter offices are considering smaller, satellite offices in the suburbs closer to where their employees live. Microsoft, to name one example, recently signed a 400,000-square foot lease in Reston, Va. with Boston Properties in an expansion of its smaller nearby space.

A survey released on July 16, 2020, by the Site Selectors Guild confirms Bloomberg’s findings.

Suburbs and mid-size cities, followed by rural areas, will be the biggest gainers in new corporate expansions and relocations, with large urban areas falling to the bottom of the list, according to the survey, which sought to ascertain changes and trends in corporate location strategy prompted by the COVID-19 crisis.

The survey asked members to identify locations that are “likely” or “very likely” to be sought after by corporations looking to expand, relocate, or open new units in the next 12 months, and found that 64% chose suburban areas, 57% chose mid-size cities, 31% chose rural areas, with just 10% choosing large urban areas.

The COVID-19 pandemic has placed a premium on physical distancing in office spaces, as well changing the forms of transportation used by office workers.

The choice of a suburban location, usually a leafy corporate park with lakes and trails for walking and jogging, allows for the construction of new and more energy-efficient buildings, and of course shorter commutes in the main.

Americans have saved more than 32.9 million hours of commuting by car during the lockdown, according to research conducted by the freelancing platform Upwork.

For the average person who commuted to work daily before the lockdown, this represents more than 4 full days of time freed-up for other activities, especially in 10 commuter-heavy metro areas across the US (see below).

Upwork found that people working remotely due to the lockdown saved an average of 49.6 minutes a day, amounting to more than 4 days since teleworking became significant after mid-March, and people stopped commuting.

The savings involved bear not just on time saved but also household budgets.

To quote Adam Ozimek, Upwork’s chief economist: “To put this into perspective, commuters who were commuting by car prior to the pandemic have saved over $2,000 each since mid-March”.

Ozimek points out that across the US, those taking a break from commuting could be saving as much as $183m a day in key commuting costs such as fuel, as well as vehicle maintenance and repairs.

To determine areas where commuters taking such breaks derived the most benefit, Upwork compared the results of its survey with data from the US Census Bureau to pinpoint metro areas having the most jobs that could be done away from the office. Of the 261 regions researched, the top 10 locations where teleworkers save the most time on commutes are:

1) East Stroudsburg, Pennsylvania: 83.6 minutes per day

2) New York-Newark-Jersey City, New York and New Jersey: 76.2 minutes per day

3) Washington-Arlington-Alexandria, District of Columbia and Virginia: 71.9 minutes per day

4) Vallejo-Fairfield, California: 70.4 minutes per day

5) San Francisco-Oakland-Hayward, California: 70.2 minutes per day

6) Bridgeport-Stamford-Norwalk, Connecticut: 69.2 minutes per day

7) Chicago-Naperville-Elgin, Illinois: 67.5 minutes per day

8) Bremerton-Silverdale, Washington: 67.3 minutes per day

9) Boston-Cambridge-Newton, Massachusetts and New Hampshire: 66.8 minutes per day

10) Riverside-San Bernardino-Ontario, California: 66.6 minutes per day

Greater worker autonomy, enhanced teleworking, workers being able to arrange work settings to their personal satisfaction, and more accessible leadership, all facilitated by technology, is however not always the panacea it is made out to be.

Internet provision can be sketchy in some parts of the country (as numerous colleges and universities which moved to online instruction soon found out), it is easier for junior teleworkers to fade into a cyber-background and be overlooked, and the shared know-how and camaraderie made possible by gathering around a coffee-maker, etc., is harder to reproduce in WFH.

At the same time, not all corporations are eschewing offices in metro areas. The growth in WFH is driving down the price of office space, which makes this a good time to buy for some corporations.

Earlier this year Amazon acquired the Lord & Taylor building– an 11-story property in Midtown Manhattan that formerly served as Lord & Taylor’s flagship department store– for $978m. The building will house 2,000 Amazon workers.

These eye-catching purchases of downtown office space notwithstanding, the WFH trend set in motion by the COVID lockdown appears irreversible.

Kenneth Surin teaches at Duke University, North Carolina.  He lives in Blacksburg, Virginia.

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