Before Covid and since the early 1990s, many companies already had flexible work schedules that allowed for office workers to telecommute, hoteling programs for desks and offices and work at home Fridays. But since the pandemic, flex work has become the bane of the office asset class, with many believing it will prove to be disastrous for office landlords and lead to a downward spiral in demand.
This is not true and will not happen. Ninety-five plus percent of employees want to return to the office for the following reasons:
- To be close to their boss and senior management who determine their compensation, promotions, and performance reviews.
- To enjoy the camaraderie of their office mates and friends.
- To be close to senior management for promotion purposes.
- Most employees do not want to take a pay reduction for working at home.
- Most employees want to be recognized for their good work and achievements while in the office.
- Most employees are more productive while working in the office.
- Most employees want to network with their friends and business associates who are also in the office and in the same city or town.
- Most employees do not want to miss important office meetings, client gatherings and social events while working at home.
- Most employees want to be able to share information and learn from their superiors and mentors while in the office.
Most employers want their employees back in the office for the following reasons:
- Worker productivity declines about 20% when employees work remotely.
- Many mid-level and senior managers want employees in the office to keep an eye on them.
- Communication is easier and more efficient with employees in the office or nearby.
- Job approval and performance reviews are easier to complete with employees in the office.
- Many senior-level managers want as many employees in their local group, unit, or division as possible as this increases their corporate status, compensation, and upward mobility.
- A large number of employees not in the office can negatively affect the company’s culture and strategy.
The demand for office space nationally will be robust post-Covid and this will be due to the comments above on returning to the office, a growing and booming economy, which creates additional demand for office space, low unemployment, favorable fiscal and monetary policy, and new office space layouts. The tech sector alone will hire thousands of new workers in 2021. Currently, in the US, there are approximately 175 square feet per employee in office buildings. If the tech industry conservatively adds 300,000 new jobs nationally in 2021, this sector alone will require 52.5 million square feet of new office space. Currently, there is over 164 million square feet of office space under construction.
One important reason for increased space demand will be due to new office space layouts. Post-Covid, the open office concept, which most companies adopted during the last 20 years, will be out the window and cubicles will be back in style and so will more and larger conference rooms, wider hallways, more individual offices, larger kitchens, lobbies, and meeting areas. This will require many existing office tenants to demand more, not less space.
The primary sector that will adopt a work at home or hybrid workforce model is the technology industry. The total office market in the US is approximately 12.5 billion square feet and the tech sector accounts for 20% or 2.5 billion square feet of the entire market. Even if the tech sector sheds 20% of its total space for work at home programs, this will only amount to 500 million square feet or 4.0% of the total rentable space. The increased demand from the growing economy and new space layouts will more than offset any of the potentially 500 million square feet of space lost from tech industry work at home programs.