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by Bryan Murphy
December 10, 2020
by Bryan Murphy
December 10, 2020
If there’s one thing we know to be true in the business world, it’s that where Google leads, others will follow. Recently the company announced its plan to let employees work from home through the summer of 2021. If arguably the number-one advocate of in-office culture is leaving desks empty for more than a year, it begs the question: What purpose does the office serve going forward and how will companies adjust their real estate strategy accordingly?
Commercial real estate has been an industry defined by major evolutionary tide shifts. Decades ago, individualized, spacious offices were the norm, with many offices allotting as much as 250 square feet per employee. Companies were comfortable entering long-term leases and building out large headquarters as their business hubs.
In the past decade, with the rise of coworking spaces, we’ve seen offices crunched down to as little as 55 square feet per employee as companies have looked to simultaneously improve collaboration and reduce costs.
While this shift to coworking was great for the bottom line of both startups attracted by flexible lease terms and coworking companies maximizing the profitability of their spaces, it is uniquely unsuited for the challenges of a global pandemic. These coworking spaces are occupied by multiple companies and prioritize density over distancing, making them potential hot zones for transmission.
The COVID-19 crisis has laid bare a truth about offices that has long been known but mostly remained unsaid: They have become obsolete in their current form.
The pandemic is accelerating companies’ shift to a more flexible way of working, which frees employees to work from home as needed but also have access to office space for team meetings and collaboration. More employees working from home has proven that not only can business operations continue to function at a predictable pace, but many employees enjoy the freedom of a work-from-home lifestyle as it offers more time with family and reduces the stress and cost of crowded commutes as well as virus transmission. I am anticipating the evolution of the office space will provide businesses with flexible lease terms, while ensuring employee safety with private, controlled spaces.
Companies are hearing this feedback. The Partnership for New York City conducted a survey of certain professional services sectors revealing that about 10% of workers will be returning to Manhattan offices this summer, and only 40% plan to be back by year’s end.
With the cost of placing an employee in a New York office up to $15,000 per year, coupled with a climate of economic uncertainty, it’s no surprise that companies are forgoing their large offices; in the second quarter of 2020 alone, long-term lease signings in New York have plummeted 72%. A recent survey of CEOs of New York-based corporations showed that 25% of office employees intend to reduce their footprint on the city by 20% or more, while 16% have plans to relocate from the city entirely.
Yet in spite of everything, the atomization of a solely work-from-home model is anathema to a flourishing company culture. Ginger, a mental health benefits platform, reported that 70% of employees are less productive at home than at work. Another recent study showed that more than 80% of Generation Z and millennial employees feel less connected to their coworkers since transitioning to work from home. Companies are finding that a 100% remote workforce is not a sustainable answer as struggles begin to show through the cracks in areas like collaboration, onboarding, and team management.
In short, offices will still need to exist to foster the ideation and collaboration that serve as the foundations for company and team culture.
The next year of commercial real estate will be transformative to the way many companies view office space, with the first step being a wholesale reevaluation of need.
As companies adopt a remote working model and reduce in-office capacity, the office of the future will be purpose-driven. Gone are the days where employees show up to the office out of obligation. Instead, the office will serve as a hub for productivity, collaboration, maintaining culture, and in-person connectivity, with considerations made to enhance sanitation, safety, and physical distancing.
But for many companies weathering the crisis, signing long-term, five-year, or 10-year leases for office space is no longer an option. It will be incredibly risky, even for the companies that are fortunate to be able to afford it.
To mitigate these risks, some companies may forgo leases altogether, favoring flexible space solutions that they can use and pay for as they need it. That could be a dedicated office space they rent by the month or a meeting space they can reserve by the hour or day.
Prior to the COVID-19 pandemic, the flexible office sector accounted for just 2% of the commercial real estate market. By 2030, that number is expected to reach 30%.
Flexible space solutions offer the in-person appeal of traditional private offices while jettisoning the long-term commitments of rigid leases. They have everything a company would need at the ready, optimized for productivity, with special inclusions for enhanced audiovisual capabilities to accommodate remote teams. These spaces should be available on both month-to-month leases as well as hourly and daily. With more companies moving to remote models, employees will want the flexibility to access workspace on demand and near their homes.
And contrary to popular belief, flexible solutions can also be private, limited to individual companies or teams at a given time, which gives them more autonomy over their environment while helping to isolate disease transmission; a problem that would be a much greater risk in coworking.
The future of the office is private and flexible. As the world returns to work, we’ll see small and large companies turn to flexible solutions to meet their employees where they are.
For larger companies, we could see more adoption of the hub-and-spoke office model. Expect hubs or HQs to be downsized to accommodate as little as 70% of their employees working there on a day-to-day basis, coupled with a rise in smaller “spoke” offices. These spokes can exist outside of city centers to retain the reach of company culture without the commute. Companies will access a network of specialized spaces on demand. For example, small conference rooms for team meetings or client pitches, and larger spaces for events and all hands.
For smaller companies or individualized teams, the flexible model may very well be the future of the office. We’re seeing many companies born in the pandemic that operate 100% virtually. They may never feel the need for a fixed office and will instead rely on on-demand offices or meeting spaces when and where they need them.
While we may not have the flying cars we were promised years ago, for companies that are looking to operate hyperefficiently and productively, on-demand offices at the push of the button is still pretty cool.
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