By Preston Young, Regional Managing Partner, Houston
The world has changed dramatically in 2020—that much is obvious. What isn’t clear is whether the office world of commercial real estate (CRE) will dramatically change. For months, we have been hearing an ever-increasing narrative that working from home (WFH) will be the “new normal” and office space is on the verge of extinction. I would submit to exercise caution before fully embracing that idea.
Now, I will admit that as a CRE professional, I certainly have a vested interest in the perpetuation of office buildings. That being said, be mindful that other companies might have a vested interest as well, particularly when issuing bold announcements and prognostications. It would seem to me that tech companies—the most vocal proponents for WFH—would stand to benefit in a more virtual world. How else would we then be able to communicate and collaborate? Yes, we have all read about Pinterest breaking their 490,000-square-foot (SF) lease in San Francisco, but what has received less fanfare is Microsoft committing to over 500,000 SF in Atlanta and 400,000 SF in Northern Virginia. In New York, Facebook (730,000 SF), Apple (220,000 SF) and Tik Tok (230,000 SF) have all made sizable commitments during the same time; and Amazon even purchased the former Lord & Taylor building for $1.15 billion earlier this year. A wise coach once told me, “your actions are so loud, I can’t even hear what you are saying.”
With any catastrophic event, corporate goals can (and oftentimes must) temporarily change in the name of survival. Generally, once safety has been restored, a company reverts to vigorously pursuing its ultimate goal—maximizing profit. Therefore, we must ask, “Has the primary goal temporarily shifted from maximizing profit?” If so, then trends established during that timeframe to fulfill an alternative goal should not be extrapolated into the future. Right now, I would contend that, until people feel safety has been restored, the primary goal for most public companies is to mitigate risk.
Throughout the spring of 2020, the impact of COVID-19 was completely unknown, and therefore, the risk was extremely difficult to quantify. As such, a vast majority of companies were on complete lockdown when confronted with an event of such incalculable exposure. As more information comes to light, companies are now in a much better position to both assess and mitigate the risk. Ironically enough, that is why there has been an inverse relationship between a company’s return to work policy and the size of its balance sheet. The larger the balance sheet, the greater the risk toward anything other than inaction. So, to determine the permanency of WFH, one must ask whether WFH was established for profit-maximization or risk-mitigation purposes? I believe the answer is clear. If it was to maximize profit, then why haven’t we seen this trend before? We have.
Anytime, Anywhere Not for Everyone
In an economic environment where the primary goal was to maximize profit, WFH has been tried, repeatedly, with suboptimal results. In May 2017, The Wall Street Journal published “IBM, a Pioneer of Remote Work, Calls Workers Back to the Office.” The punchline of the article is that after 20 consecutive quarters of falling revenue, IBM concluded that their “anytime, anywhere workforce” needed to improve collaboration and accelerate the pace of work. It appears that IBM placed a premium on profit maximization. Aetna, Bank of America and Yahoo underwent the same WFH-experiment with similar, well-documented underwhelming results.
As recently as few days ago, JPMorgan issued an internal memo requiring a good portion of their employees return to work. After analyzing their own productivity during the pandemic, they experienced the same issues as IBM. Productivity declines were highlighted among “employees in general, not just younger employees.” Moreover, work output was particularly affected (shockingly) on Mondays and Fridays. Since issuing that statement, other banks have followed suit with similar internal announcements. Goldman Sachs now has many of its employees returning to work over the coming weeks. It seems the primary goal of maximizing profit is creeping back in.
There are certainly cases where WFH makes sense. Depending on who you ask, five to twelve percent of the office jobs prior to COVID were in a WFH capacity so there are certain situations where it can be beneficial. My primary points are to emphasize that (1) WFH en masse has been tried, repeatedly, with the same, predictable outcome and (2) extrapolating trends can be a perilous exercise when corporate goals have been temporarily altered.
Next, I will highlight a few trends we believe will occur in post-COVID world (that are in-line with profit maximization); but in the meantime, don’t hesitate to reach out if you would like to discuss anything further. Just try me at the office—and not home.
About the Author
Preston Young serves as the Regional Managing Partner, leading Stream’s Houston office. Preston is responsible for identifying and jointly spearheading strategic growth opportunities for the firm. Under Preston’s leadership, the Stream Houston office is consistently recognized as a top workplace by several local organizations.