The office. The place where deals are made, solutions are found, top decisions are taken… where company identity is created, and the company culture breeds, professional and casual relationships are established—the place where, after the pandemic, employees want to go back to…but not really.
More than a year ago, millions of workers worldwide were forced into working-from-home (WFH) following the urge of the World Health Organization and governments to comply with social distancing rules in the fight against Covid-19. The light at the end of the tunnel became more visible with the roll-out of the vaccines. With the relaxing of the strict social distancing measures in sight, conversations on how returning to the workplace will look like are becoming more heated. Despite all the doubts that the future holds, one thing is certain: remote work is here to stay. Results of a workforce sentiment survey by CBRE show that 85% of the 10,000 respondents across 18 countries would like to continue working remotely about two to three days per week at the end of the pandemic. Employers are listening: another survey carried out by PwC indicates that 80% of the 300 global companies taking part in the survey are adapting for remote work to become the new norm. The firms’ prerogative to make these new arrangements is related to concerns over the health and safety of the employees, the attraction and upkeep of talent, and the employees’ experience.
What will this mean for the office space demand in the future?
A Forced Global Experiment Bringing To…
The idea of ‘ditching’ the traditional workplace dates back to the 1980s, which Alvin Toffler advanced in his book The Third Wave. Toffler wrote: “The new production system could shift literally millions of jobs out of the factories and offices [..] right back where they came from originally: the home.” At the time, teleworking was not a viable option because the technology simply did not exist. However, the technological revolution of the last decades has made it increasingly seamless for employees to work remotely.
Despite easier access to communication technologies and the internet, the phenomenon of remote working was slowly taking hold in pre-Covid-19 times. For example, in the European Union, only 10% of the workforcewere fully or partially working remotely before the pandemic. The reason for the unpopularity of remote working resided in the belief that productivity would plummet by not being in the office.
At the beginning of 2020, things had to change. Societies worldwide had suddenly become participants of a ‘forced work-from-home experiment’: firms mandated their workers, whenever possible, to continue operating even if not physically close to each other.
The results of this experiment turned out more than positive, demonstrating that fears of lower productivity levels were unfounded. Despite the sudden switch to a WFH model, workers’ productivity was not hampered. In some cases, executives and employees even witnessed an improvement in their work output due to WFH, a PwC survey shows.
Seeing that letting employees work remotely is not all that bad, companies are getting more comfortable with the idea of embracing hybrid work models. Global tech giants have already announced their changes during the course of 2020. Last October, Microsoft disclosed: “We view working from home part of the time (less than 50%) as now standard.” Other companies took the same route. Twitter, Facebook, Upwork, Spotify have put in place new WFH policies meant to allow flexibility to their employees once the pandemic will be over. It should be expected that other companies will follow suit.
Going to the office as we knew it is now a thing of the past; some extremists even dare to say offices will not be needed any longer. Although office spaces have been barely used in the past year, that might be a hasty statement. Certainly, working from home is feasible and often beneficial. Employees can focus more on their individual tasks as they have fewer distractions from the office environment or dedicate more time to work because of avoiding the commute, for example. Nonetheless, some activities could be deprived of their efficacy if not carried out in person. How can new employees go through a legitimate onboarding process only through their laptop screens? What would be the quality of critical business decisions, negotiations, or brainstorming sessions if carried out only on video conferencing platforms? What will it be of the company’s spirit if this can be shared in person among colleagues?
Social interactions are a vital component of organizations, and the office is where all the ‘magic’ happens. Workplaces are not going anywhere but are bound to withstand substantial changes.
…a new layout
Companies are anticipating that their office space needs will either increase or decrease, depending on organizational priorities. Reasons for increasing office space are mainly related to newly found needs for physical distance and the desire to create more spaces dedicated to collaboration. Contrarily, those companies predicting to reduce their real estate portfolio are influenced by the reducing operating costs and the upsurge of teleworking – indeed, why would each employee have a designated desk if this will not be used half of the time?
Allowing employees to work flexibly and at the same time renting the optimal amount of square meters seems like a complex problem to solve. However, the solution is already here: flexible offices.
The Birth and Rise of Flex
The term ‘flexible office’ is an umbrella term indicating a workspace provided to individuals or businesses, which could be either co-working spaces, meeting rooms, private offices, or executive suits. Flexibility on the lease contracts, uniquely furnished environments, and an array of top-notch amenities characterize these spaces. The model is simple: flex-space operators rent from landlords with long-term contracts and then sub-lease it on a short-term basis. Sub-letting usually comes at a premium, as the flex-operators need to be rewarded for the extra risk of matching a long-term obligation with a short-term revenue flow.
Flexible offices are the result of the evolution of open office design dating back to the 1950s. In those days, corporations’ need to optimize space contributed to creating co-working office designs, with the division of the space following the workgroups’ pattern. Flexible offices have a similar set-up. However, in these spaces, the workforce is rather mixed: tenants are either self-employed or work for different employers.
Flex space took hold particularly after the Global Financial Crisis to meet the demand of high-quality and well-located offices by newfound startups and microbusinesses. Although, as of now, the majority of offices around the globe remain traditional, flexible office models are on their way to represent quite a large chunk of the total office stock. Jones Lang LaSalle predicts that 30% of total office space will be flexible by 2030. The global flexible take-up has been growing at impressive rates, as much as 25% per year since 2014. The highest concentration of flex-offices is present in international hubs like London (6.9%), New York City (4.3%), San Francisco (4.7%), Amsterdam (6.3%), and Paris (3.5%).
The favorable economic conditions of these locations allowed the flex-space market to grow at the highest pace. In these cities, we see a significant number of offerings and a wide range of operators. In Amsterdam alone, for example, flexible office operators of all sizes are more than 50.
The market took a hit in 2020. The leasing activity on flexible space was already going down in the fourth quarter of 2019 because of the haltered expansionary drive of WeWork, the biggest flex-office operator in the world. With Covid-19, such activity was haltered even further, with cities like New York, London, and Paris witnessing a year-on-year decrease in flexible leasing of 84%, 83%, and 50% during the first quarter of 2020, respectively.
Going Forward
The pace at which flex offices have been growing prior to the pandemic has contributed to the development of many innovations. Many more are still to be expected in the upcoming years. Companies should now focus on exploiting the potential of flex offices, which will be crucial in accommodating employees’ desires for more autonomy and avoiding unnecessary costs resulting from unused spaces. Landlords should think of new ways to adapt their real estate portfolio and keep up with changing demands.