By Michael G. McGuinness
Almost every day, another news article pops up about how the workplace is changing. While this isn’t a fresh topic, said Phil Mobley, director of U.S. occupier research with Avison Young, in a recent NAIOP webinar, discussion increased with the onset of the pandemic in early 2020.
On the bright side, office talk has stabilized now that both employers and employees affirm that remote workers can be successful, but it’s still debatable about what the changes mean for commercial real estate, and the office sector in particular.
The biggest driver of the continuous evolution of traditional office is the war for talent. A tightening labor market has shifted the balance of power to flexibility-craving employees, and talent has proven its effectiveness to work remotely. In other words, talent is winning the war.
The Great Resignation has also made its way to knowledge work. The trend that largely began with employees in the hospitality and leisure and retail sectors — with six out of every 100 workers quitting — is expanding. Toward the end of 2021, resignations among knowledge workers, including professional and business and information industries, began rising and hit levels of three out of every 100 workers.
What does talent want? The list is long, topped by higher salaries for lower-wage jobs. For knowledge workers, a wfhresearch.com study of 55,000 U.S. respondents who can work from home (WFH) shows that 32 percent of them want to do it permanently. This means that two-thirds don’t want to WFH all the time, but a large majority of them want a hybrid offer with access to both environments.
The success of a hybrid work schedule dates back more than a decade to a 2010 Ctrip (now trip.com) pilot program that allowed a segment of its call center workforce to work remotely. Overall, the company saw a 13 percent increase in productivity. After the trial, the company made the option available to all employees, resulting in 22 percent higher productivity. In 2021, trip.com implemented a three-days-in, two-days-out schedule, which resulted in overall higher job satisfaction, a 30 percent reduction in resignations and fewer sick days.
That’s not to say there aren’t pitfalls to full-time WFH or hybrid schedules. Possible promotion penalties — where remote employees are passed over for promotions in favor of employees full-time in the office — is a leading concern, as well as relationship erosion between coworkers and managers. At a recent planning session, NAIOP New Jersey leaders discussed the challenges of mentoring new hires and the lack of immersion in company culture when workers are remote. One of the CEOs said that “it just can’t be done and it’s wildly irresponsible to think that it can.” In addition, not all home offices are created equal, and nearly one-third lack reliable broadband or dedicated home office space. Productivity and effectiveness among remote workers may not be sustainable over the long term.
What does this mean for the workplace? Studies show that workplace quality matters a great deal, and that excellent offices attract the greatest talent. The big “Return to Office” has been repeatedly delayed with the rise of the Delta and Omicron variants, so while these theories are still yet to be tested, it’s safe to expect greater support for remote workers, including technology, ergonomic equipment and flex workplace memberships.
Instead of traditional seas of cubicles or rows of individual offices, newer or redesigned workspaces will be fit for purpose, with a greater mix of both focus and collaboration spaces. Investment in proptech is expected to accelerate even greater than the $9.5 billion invested in 2021, particularly on access control and booking, internet of things/sensors and communications.
For the office market, it’s going to be a slow and uneven recovery, taking time for office fundamentals and foot traffic around central business district office buildings — still down 60 to 70 percent in some major markets — to return to pre-pandemic levels. Some markets, including San Francisco and Manhattan, were hit harder than others in terms of absorption and pricing, and there’s relative strength in secondary markets and suburban areas. Total office investment in suburban offices hit 68 percent last year, and central business district office markets claimed less than one-third — the lowest percentage since 2009.
One of the unfortunate consequences of the WFH trend has been the demise of many smaller retail businesses created to support office workers. We, especially those of us in the commercial real estate sector, have a responsibility to return to the office on a regular basis. This will be good for the GDP. We will, however, need to weigh that decision against the need to reduce our energy consumption and carbon footprint to combat both the adverse impacts from climate change and rising fuel prices as the country weans itself off foreign energy sources, which has been accelerated by Russia’s recent aggression in Ukraine.
(Note: The majority of this article was taken from the Feb. 22, 2022 blog post by Kathryn Hamilton, CAE, vice president for marketing and communications at NAIOP Corporate.)
Michael G. McGuinness is CEO of NAIOP New Jersey and has led the commercial real estate development association since 1997. NAIOP represents developers, owners, asset managers and investors of commercial, industrial and mixed-use properties, with 830 members in New Jersey and over 19,000 members throughout North America.