To everyone who says office space is a thing of the past as a result of the swift transition to a work-from-home, Michael Colacino of SquareFoot says, “hold your horses!”
“We’ve had three months of this socioeconomic experiment as a result of the COVID-19 pandemic, but we haven’t had the time to reflect on what it all means. Anyone that jumps to a conclusion about how everything is going to change really needs to have a longer baseline,” said the president the online commercial real estate company in New York. “Uncertainty is the most central theme of the pandemic, and as certain as everyone seems that they know what’s going to happen, we can’t truly predict the future.”
Tech giants like Twitter, Shopify and Facebook are spearheading a movement to permanent remote work structures, and other companies are coming out with hard, fast statements about the role that office space may or may not play in their future, but Colacino says these decisions can be biased.
“We are listening too much to those that have vested interest in people working from home. For example, Shopify’s whole business model is built around the idea of being at home and on the internet.”
While the COVID-19 pandemic and its global impact is unprecedented, the office sector has been threatened severely before – the September 11 terrorist attacks, the global financial crisis and even the stock market crash back in 1987. The point is killing the office will be harder than we think, and it may not be the best move for everyone. While change and transformation is inevitable, companies should take the time to consider what structure works best for them.
“Even small change takes a long time. I’ve been on many company headquarter relocation projects, and those can take three to four years to study before any moves are made,” he said.
Bye to 9-to-5
Brokers can play a pivotal role in this decision-making process by providing quality advice and suggesting solutions to best utilize office space in this ‘new normal.’ The biggest issue to consider is reducing density to help prevent the transmission of coronavirus. This can either be done physically or temporarily. Colacino is in favor of schedule modifications as its less disruptive and more cost-effective than totally scrapping the office.
“We have to change the way we look at office space. Rather than an asset, we need to look at the office as a resource,” he said.
In a bid to maximize the use of space and keep the office at 50% capacity, SquareFoot designed an algorithm that uses a rating system for each department. The algorithm considers commutation of team members, the amount of face-to-face interaction needed and the importance of cross-group collaboration. Then it allots time to each person on each team depending on how much of that resource is available to them. There’s also an inverse measure to ensure people who haven’t had as much access to the office also have a fair chance.
“The typical nine-to-five workday may be a casualty of this crisis. Allowing one person to come in from 6am to 2pm and another from 11am-7pm would create overlap, minimizing capacity while still allowing a window of communication,” said Colacino. “Considering Saturday as a potential workday is an option as well.”
One of the greatest challenges getting back to the office will be the fact that much of the team would have gotten used to working from home, but a return to the office with increased flexibility may be a better option. Working from home disrupts company culture in a big way. The office is more than just a place to tap away at your keyboard and understanding the psychological impact of working from home when it comes to morale, loneliness and feelings of belonging are yet to be determined.
The growth of satellite offices is a trend that is already starting to take shape. Companies are looking at smaller spaces located closer to where employees live. For example, if office headquartes are in New York City, satellite offices may exist in Westchester, New Jersey and Long Island.
“People can use the satellite office a couple days a week, head into the main office when they need to, reduce the commute, while still allowing that person to be part of the culture.”
How will this reflect on commercial real estate
Working from home however is not the biggest threat to the commercial real estate market. Rather, it’s the 40 million people that remain unemployed in the United States.
“Working from home is something new and exciting, while people tend to view recessions as a boring fact of life. We need to consider that we could be going into a multi-year economic downturn which will have a tremendous impact on real estate in terms of prices, vacancy rates and value of assets,” said Colacino.
In New York, he adds that around 150,000 people are out of their office jobs as a result of COVID-19 and that will result in a huge decrease in office demand, far more detrimental than companies considering working from home.
A drop in demand will cause prices to go down, which will create some buying power for some. It will also lead to a huge increase in sublease space and although it’s not evident yet, Colacino says he expects some of these trends to start materializing in September, when the summer slowdown dissipates.
Flexibility remains key
“We need to remember that real estate is not a great expense relative to people. Making sure team members are happy is far more important than saving on real estate,” said Colacino. “We don’t know what the future will look like, but we do know there will be a demand for flexibility in office deals like never before. WeWork and its clones proved that short term leases, whether it’s for a month, week or day, is something that people want and that hasn’t gone away.”