The end of the office
In the world of social distancing, many of the world’s office workers have not seen their desks for weeks. But when coronavirus lockdowns finally ease, there may be fewer desks to return to.
Facing a sudden need to cut costs, chief executives have indicated in recent days that their property portfolios look like good places to start given the ease with which their companies have adapted to remote set-ups.
“The notion of putting 7,000 people in a building may be a thing of the past,” said Jes Staley of Barclays. “Maybe we don't need all the offices that we currently have around the world,” mused Mondelez’s Dirk van de Put, while Sergio Ermotti said UBS was already thinking about moving out of expensive city-centre offices.
A PwC survey this week found that a quarter of chief financial officers were already thinking of cutting back on real estate, while the Site Selectors Guild, whose members help companies locate new buildings, said half of US office searches had been put on hold since the crisis hit.
Tom Stringer, who leads accounting firm BDO’s US site selection team, said that while most of its projects were going ahead, clients were having serious discussions about cutting back.
“In six weeks we’ve taken almost the entirety of the back offices of corporate America and moved them to kitchens and living rooms and it’s been pretty seamless,” he said.
“People are getting used to it. The stray dog or the kid wandering into the conference call is now accepted in corporate and governmental America.”
IT consultancy Infosys says it has been easy to book in clients for video conferences from home © AFP via Getty Images
Many chief executives also seem not to miss the office.
“I have been so much more connected to 20,000 employees in the last six weeks than I have in the last six months thanks to the technology we are using,” said Jim Collins, of biotech and agriculture group Corteva.
Salil Parekh, of IT consultancy Infosys, said it had been easy for him to book in clients for video conferences from home, rather than having to travel to meet them. He saw little need for his employees to rush back, he said, and predicted that some would remain home workers.
Even Sir Martin Sorrell, the 75-year-old advertising boss who runs S4 Capital, said he had found working from home “energising”, and expected it to herald a “permanent change” to his working practices. The former WPP chief executive has already started ending leases at some sites.
“I spend around £35m on property in a year,” he said. “I’d much rather invest that in people than expensive offices.”
That is an alarming message for commercial property executives, who have been loudly casting doubt on the sustainability of remote working.
“Most of us have now experienced the inefficiencies of working from home and miss the connectivity and productivity an office environment provides,” Thomas Durels, an Empire State Realty Trust executive, remarked on an investor call earlier this month.
Jay Sugarman, chairman and chief executive of Safehold, used his real estate investment trust’s earnings call to rhapsodise on the virtues of the shared workplace.
“The daily work environment, the daily interaction, the social energy that's created that makes working for a company part and parcel of why you want to get up every day and give it your all, you just can't replicate working from home,” he said.
Office-focused Reits sold off by more than the broader US equity market in March and have struggled to rebound as quickly, remaining 23.3 per cent lower for the year against just over 10 per cent for the S&P 500.
Office bulls say that, at least in the short term, the need for social distancing will reverse commercial real estate’s “densification” trend, which for years saw more people crammed into smaller spaces.
“Our customers with dense layouts . . . are removing workstations and will return to work in a less dense environment,” said Owen Thomas, chief executive of Boston Properties, who predicted that some clients would even need more space as a result.
Chris Grigg, chief executive of British Land, agreed that the “first-stage recovery” from the pandemic would push tenants to “rejig” to less dense arrangements. He added that the office would have a future, albeit in different forms.
“There is a danger of groupthink,” he warned. “You have to bear in mind that there are some people struggling to juggle childcare or home schooling with their day job, and more junior colleagues who are sharing flats who think this is nothing short of a nightmare.”
Bosses and property owners say their immediate preoccupation is how to get workers back safely.
“How many people can work in the building if you limit the number of people in an elevator to two in a time?” asked Mr Staley.
Some companies report a shortage of perspex that can be used to separate desks, while the prices of masks and other safety equipment have risen sharply.