I know what you are thinking: “Not another article about the future of office space?!” I get it. This soapbox is getting worn. But you have my promise that I will make every attempt to keep your interest. Generalities will be avoided. Market stats will be kept to a minimum. Instead, I will share with you what I have seen, heard and experienced as a grizzled commercial real estate veteran who has been through so many real estate cycles I keep both Dramamine and TUMS in my desk drawer.
As you likely already know, the work from home experiment has forced us to adjust quickly and find ways to continue to work productively and efficiently without the support of a traditional office environment. Fortunately, technology provided us with platforms and forums to continue working. By and large, the experiment worked. We are figuring out how to run many businesses without the use of an office.
But, there is certainly something lost. Saying that just keeping a business running is the same as thriving is like saying “I can still run like I did when I was younger, it just takes me much longer to make it around the track.” Our work encroached into our personal space abruptly in mid-March last year. This merging of work and personal space has accelerated the changes that were already in progress. A movement toward a new workstyle that allows people to create their own balance between the two. While this can be seen as good news, there are important fundamental factors that cannot be ignored. Let’s not forget: there is roughly 4 billion square feet of office space in the United States, worth around $1.7 trillion (pre-pandemic).
Here I would like to admit my bias, having spent my career working in the real estate industry, representing both commercial tenants and commercial landlords, as well as directly leasing 150,000 square feet as a business owner. What I have learned over these past three decades is that the more things change, the more they stay the same, especially when it comes to office space.
Pronounced dead, again
The media, looking for provocative material, loves to challenge the status quo. Recently remarking, in effect, that office space will no longer serve workers the way it once did. This is true. Office space is always reinventing itself every half decade or so. However, what has never changed is the physical presence of workers occupying the office.
Pundits have been predicting that everyone will be working from home since the invention of the fax machine and the introduction of overnight mail. That the daily commute will be a thing of the past and that the demand for office space will decrease. As a young executive in the mid-80s, I recall discussing this at lunch over martinis (de rigueur at the time). I remember wondering whether-or-not I had just begun my career in a dying industry.
During the 1980s and early 1990s even the most junior executive occupied a private windowed office. While the senior executives vied for the larger corner ones. In fact, real estate developers started to design sawtooth floor plates to accommodate more windowed corner offices (think Trump Tower). The few workstations, which they called “desks,” were occupied by the secretarial pool. The standard density (i.e., the measurement of square footage allocated per employee in the office) during those years was approximately 250 square feet, which also encompassed one’s proportionate share of hallways, conference rooms and other common spaces. As office space started to become more expensive, due to both limited new construction and increased demand for space during the early 1990s, density levels started to drop.
Shortly thereafter, the tech boom happened, pushing density levels down even further. Small startup technology companies were popping up like mushrooms and they have very different views of the office than the traditional occupiers. News stories once again began to appear stating the demise of the office building and the inevitable decrease in demand for office space. Quite the opposite happened.
By 2000 the average density was down to 185 square feet. College graduates entering the workforce quickly adapted to working elbow to elbow at long tables alongside their colleagues in front of their respective computers. Even with email, instant messaging, the ability to send large files over wires (or then with no wires at all!) and affordable mobile phones, workers still wanted to be together. And, it turned out, that is what the employers and managers wanted as well. The velocity of information within the technology industry was moving so quickly at the time that one would literally be left in the dark if they chose to work from home. Even technology companies wanted to be near other technology companies. Technology clusters formed: Silicon Alley (NYC), Silicon Wadi (Israel), Cambridge Cluster (UK), Greater Seattle, Silicon Hills (Austin) and, of course, the infamous Silicon Valley.
In addition to industry branding, what these technology hubs had in common were neighborhoods that offered 24/7 work and play. The workers wanted to be together all the time. Tech developers could invent new apps during the day and ad hoc test them at night. Only to return in the morning for more tweaks.
How did we get here? Technological advancements most definitely helped. There were cultural shifts at play as well. Techies were cultish in their pursuits (they were changing the world after all). This new breed of young professionals wanted to work all the time. Hussle culture took hold as many would brag about working nights and weekends. They would work from anywhere and companies, for the most part, let them.
The disruptive innovation that companies like Apple, Google and Amazon were able to create with their “techie” culture made the entire world take notice. In 1995 only 9 percent of the workforce was telecommuting on a regular basis. In 2006 that number grew to 32 percent and has plateaued since then (until March 2020). But remember, telecommuting regularly is not working from home. Before the start of the pandemic less than 3.5 percent of the workforce was working from home full time.
Separation of work and state (of mind)
One of the biggest changes that has happened from our new working arrangements is that there is now no discernable separation of work and our nonwork spaces. This has caused us to further consider the importance of separating our work and nonwork lives. Some of those who are working from home are now even “fake commuting” to create a sense of separation. A start and a finish. The fake commute might entail a walk around the block in the morning before starting the day’s work and again at the end of the day to allow for a transition from work to family, friends and/or sports and hobbies. As silly as it sounds, experts warn that, without a distinct separation of work and play, burnout can set in earlier and last for a longer period of time.
Before the pandemic companies looked for ways to keep its employees in the office for as long as possible. Free lunches were offered to keep employees from leaving the office for any period of time in the middle of the day. Research proved that when colleagues ate lunch together, they spoke about work the majority of the time. Problems were being solved over lunch. Creative ideas were being spit balled (bad choice of words, I know).
Architects and designers of corporate interiors who delve into the essence of their craft are constantly evolving to serve their clients’ highest business priorities. For example, by creating a workplace that included inviting lounge vignettes and over sized pantries, workers would inevitably stray from their offices or workstations to grab a coffee, undertake casual business meetings or private conversation. These random walks around the office would create what is referred to as “accidental collisions.” Random meetings intended to create opportunities for collaboration between the left-brained and the right-brained workers. Individuals who might not otherwise interact in a more conventional office setting. Not only did these interactions boost productivity, they established a more congenial workplace.
Bloomberg, the New York based multi-billion dollar financial software/media company, is a pioneer in the open landscape workplace, replete with expansive common areas and free food throughout the day. There is not a single private office in its headquarters on Lexington Avenue. Even Michael Bloomberg himself conducts business from his dedicated workstation.
In early 2013, Yahoo CEO Marissa Mayer, convinced of the value of having its employees in the office, banned working “remotely.” To further make her point, employees had the choice of complying with the edict or quitting. The memo from human resources stated “to become the absolute best place to work, communication and collaboration will be important, so we need to be working side-by-side. That is why it is critical that we are all present in our offices.” Population density dropped further to approximately 110 square feet.
Ironically, the technology companies that focused on keeping workers tethered to the office are now talking about permanent work from home scenarios. The thinking changes on a dime. Microsoft announced in October that employees can work from home indefinitely. Facebook is shifting thousands of jobs to remote work. Yet Facebook executed one of Manhattan’s largest leases of 2020, for 750,000 square feet at the former Farley Post Office behind Penn Station. It isn’t that tech companies don’t want offices, they just want the best out of the office. I think we will continue to see a lot more finished wood floors, breakout rooms, phone booths, war rooms, sky-lights, exposed brick walls, marble, lounge space, meditation rooms, flawless ventilation and filtration systems, and buildings that can help teach companies how to best utilize them.
Cultural war battlegrounds
Before the pandemic, corporations were dedicated to culture, brand building, collaboration, mentoring, creativity, efficiency, innovation and productivity. These ideals will not disappear. I expect that business owners and managers will remain intent on keeping their employees and teams working longer in close communication with one another on “campus.”
If there is to be a momentous change in workstyle after the pandemic is over, it will likely be towards a need to more clearly define the time dedicated to work versus the time dedicated to our personal lives. But ultimately, it’s the business owners and the managers who make the decisions about where the employees will work. And while the WFH concept is “working” during the pandemic it certainly is not likely to prove to be as efficient as working in an office.
Nor does it provide any social interaction. After all, we are human beings. Human Resource policies notwithstanding, over 50 percent of us have dated someone we work with at the office. In fact, 22 percent of married couples met at work. Come to think of it, after almost a year working from home, maybe some couples are anxious to get back to the office to meet someone else.
One of the primary drivers these days in building a solid corporate culture is balance. That is: passionate, dedicated work together with physical & mental health, sustainability where possible, diversity and inclusion. Except for those of us with multiple personalities, it’s hard to find diversity and socialization while home alone.
Is it really time to overhaul the model? For some companies, yes. But not for all. As the pandemic ends, there will be plenty of empty office space but it won’t last forever. Many companies will see lower office prices as an opportunity to upgrade their office to reap all of the benefits that they expect from it.
As it stands, the most important thing that we can all do now is take the necessary precautions to keep each other safe. Social distancing, working from home, is without question required while riding out the pandemic. Even as the vaccinations roll out, reentering office buildings and other public spaces must be taken with care and the proper precautions. All available resources and energy should be focused on helping those infected and protecting the most vulnerable in every way.
Yes, some companies may consider reducing their corporate footprint. However, this will be offset somewhat by the need to maintain social distancing within the office. Density may go back up to 250 square feet, temporarily, as it was 30 years ago. Theoretically, office leasing absorption should remain stable, after dipping slightly. However, economic expansion and population growth will continue to drive demand for office space over the long run. And, as the pandemic ends, there will be plenty of room in the existing offices to accommodate the rush back to normalcy. Back to the energy of the office: collaborating, creating, innovating, closing deals while clothed in crisp, clean suits and ties. That’s right! Do not throw out your ties. And, polish up those Manolo Blahniks languishing in the closet. You will don them once again.…This is just another cycle, it won’t be the first and it won’t be the last. So, even after you think we have all of this turbulence behind us, keep the Dramamine and TUMS close by.
Michael Gochman
Michael has been working in the commercial real estate industry for over 25 years having held senior executive positions with the Rockefeller Group, Trump Organization, CBRE, and TechSpace. He founded and held the position of President and CEO of Gochman Group since 2002. Mr. Gochman is a member of The Real Estate Board of New York, holds a B.S. from The University of Vermont, and an M.B.A. from Pace University.