Someday the coronavirus pandemic will release its grip on our lives and we will return to the workplace. The question is: Will there be an office to go back to when this is all over?
The changes the business world is considering offer a radical rethinking of a place that is central to corporate life. There will likely be fewer offices in the center of big cities, more hybrid schedules that allow workers to stay home part of the week and more elbow room as companies free up space for social distancing. Smaller satellite offices could also pop up in less-expensive locations as the workforce becomes less centralized.
In San Francisco, Twitter Inc. notified employees this week that most of them could continue to work from home indefinitely. Canadian information-technology provider OpenText Corp. expects to eliminate more than half of its 120 offices globally. And Skift Inc., a New York media company, is giving up its Manhattan headquarters when its lease expires in July.
The modifications could have a profound impact on millions of workers who defined their work lives around a daily trip into “the office,” with consequences that aren’t yet known. Some employees in coastal cities might be able to take their existing salaries to places with a lower cost of living. But that may also mean those workers can be easily replaced by someone offshore, where costs are even lower. Employees would gain flexibility, but they might miss the temporary respite from domestic responsibilities and exchanging ideas in more impromptu ways. Big companies would save on real estate costs, but they might struggle to outbid smaller companies for the best talent if traditional office perks like free food and bike storage are no longer as essential as they once were.
“Some companies are ditching the office altogether. Skift Inc., a roughly 60-person business media company that covers the travel industry, is giving up its office in Midtown Manhattan when the company’s lease expires in late July. It also won’t renew a deal for a co-working space for London-based employees. The moves will save the company close to $600,000 annually, including expenses for utilities, office snacks and commuter benefits for employees, said Rafat Ali, Skift’s chief executive. The company may rent a flexible working space for perhaps one or two days a week in the future so employees could physically come together.”
The zeal for a new definition of the traditional office is driven in part by the shrinking economy, as companies look for new ways to cut costs during a downturn that is expected to be the worst since the Great Depression. Many executives also point to the success of an unprecedented work-from-home experiment, and how little productivity appears to have been impacted after millions of employees in technology, media, finance, and other industries have been forced to work remotely for months.
“I mean, if you’d said three months ago that 90% of our employees will be working from home and the firm would be functioning fine, I’d say that is a test I’m not prepared to take because the downside of being wrong on that is massive,” said Morgan Stanley Chief Executive James Gorman in mid-April on the bank’s earnings call.
The biggest loser in the rise of a reimagined office could be the commercial real estate market and the big institutional investors that have invested heavily in it. Pension funds, insurance companies and other institutions have spent billions of dollars to buy big city office towers in cities. They are depending on continued tenant demand that now looks poised to slow.
This doesn’t mean urban offices are disappearing anytime soon. Leases are hard to tear up, and few companies want to ditch the office altogether. There were also other periods where the end of the center-city office building was wrongly predicted, beginning in the latter half of the 20th century as some companies decamped to suburban office parks and following the shock of 9/11. Each time the centralized office building proved to be surprisingly resilient.
Many who are attached to the real estate industry still say there is no substitute to having all employees under one roof. “One of the most important aspects of American business over the last couple of decades has been the establishment of firmwide cultures—the idea that having the right firmwide culture can make your company successful,” said Will Silverman, a managing director at real-estate investment banking firm Eastdil Secured LLC. “I just don’t know how you establish a culture among people who are only together a few days a week.”
Space Race
Companies are re-evaluating their real estate needs in the era of Covid-19, asking whether a decentralized workforce might cut costs. Achieving that goal might be easier in certain cities where you can get more space for your money and enough excess square footage is available to let employees spread out safely.
Some companies, however, are already planning their retreat from traditional offices while a deadly virus spreads across the globe. OpenText’s elimination of more than half its offices will result in 2,000 of the company’s 15,000-person workforce working from home permanently across back-office roles, client relations and technology support, according to Chief Executive Mark Barrenechea. The company makes information-management software. “At this scale, this is certainly being driven by the pandemic,” he said.
To keep the company’s culture intact while its people are physically apart OpenText is conducting online happy hours, virtual chess tournaments, and game nights while encouraging employees to use video conferencing backgrounds that showcase their personalities. “I stepped back and said ‘OK, it’s working for us,’” Mr. Barrenechea said. The enterprise information-management software company is in the process of determining which office leases to let expire and which to renegotiate with landlords, he said.
In Silicon Valley, where company culture was always a cornerstone of startup life, some of the biggest companies were the first to embrace the concept of working remotely through the pandemic. Now they are also re-imagining how workers will congregate in the future.
Twitter Chief Executive Jack Dorsey notified employees Tuesday that they would be able to work from home even after the pandemic is over, with exceptions for some jobs that can’t be done remotely. Twitter doesn’t plan to close or shrink any of its offices.
Since the pandemic started, the social media company has been hosting virtual events to foster interaction between employees. Twitter’s chief human resources officer, Jennifer Christie, said more people engage in the meetings now that they are virtual. They also create a level playing field. “Everyone has the same experience,” Ms. Christie said.
In the last decade, corporations have tried to reduce their office space by squeezing in as many employees as possible on their floors, but social-distancing rules make that increasingly difficult. Now, many companies say they will allow more people to work from home and restructure office floors to allow for greater spacing. Companies typically spend 2% to 3% of their revenues on office space, according to real-estate analyst Green Street Advisors.