In some companies, there is a clash brewing between management that wants to return to the office and employees who prefer remote work. Many CEOs are eager to get back in the office and the trend has accelerated in recent weeks as vaccines have become more widely available. Further, a recent Bloomberg article reported that Wall Street behemoths such as Goldman Sachs, J.P. Morgan Chase, Citigroup and other major investment banks and advisory firms are eager to get back to work with all hands on deck at the earliest possible opportunity.
In contrast, a recent JLL survey of 2000 workers around the world found that 72% of employees want to be able to work from home more during the work week, and 66% want a hybrid model that incorporates the office, home and third place such as a co-working facility or coffee shop. Watch this space regarding upcoming developments, and we shall also keep an eye out for future litigation involving employers requiring their employees to be vaccinated with a carveout for those opposed on religious grounds.
Notwithstanding the uncertain outcome of that debate, we can safely predict that it will not be sufficient for landlords to offer free lunch and dry-cleaning concierge services to tenants to lure them back to the office. Indeed, hygienic practices such as better ventilation and robust security procedures are just the beginning of what needs to be improved. Rather, there needs to be a recognition by the landlord community that there has been a sea change in the attitudes of most employees and many managers as well regarding the efficacy of work from home. In order to adapt to the new world of work, landlords are going to need to invest in order to make the office a place that provide services that really make tenants want to come back to the office. This includes creating childcare facilities, free exercise facilities and even developing healthcare options on or near to the premises. Tenants need to be made to feel that they are truly getting something by going to work, rather than work being a place they are forced to go.
For the first time ever, landlords must also recognize that the office is no longer a requirement for their tenants, it is a destination. As long as such a high percentage of employees want to stay home, personnel department of companies with high quality employees who have options will pay attention. In addition, some companies will be looking for opportunities to reduce space and save money. That is a double whammy to landlords who now need to compete with work from home and make the office more appealing to employees.
The concept of choice is new to American work. Most employees previously viewed their workplace as a place where they had to go. But now everything has changed. Necessity is the mother of invention, and now it is not clear to some employers that their employees have to be at a specific workplace in order to be productive. Landlords must act accordingly if they want to save their franchise. I recognize that these changes are not going to be easy. Further, some are going to be expensive, and landlords are going to have to bear the brunt of the cost. However, there is no alternative, unless landlords want 50% empty office buildings for the foreseeable future and the hollowing out of our major cities.
So we’re sounding the alarm. We can’t just assume things are going to be better for the real estate industry with a return to health. We can reasonably expect that airplanes will soon be full, people will be traveling again, hotels will be packed and conventions will return so people can gather together in person. But we cannot be so sanguine about the office. Some hard forward thinking is required to save the day and preserve the ecosystem of businesses that thrive when offices are full.
In a recent article in the Financial Times, Simon Kuper predicted that cities will change for the better after the pandemic and many offices will remain a focal point of ideas even if employees are not required to come in to work every day. Companies that could not afford rents in the central business district may be attracted by lower rents. There is also considerable evidence that residential rents in Manhattan and Central London have fallen substantially as people left for safer environs, and Bloomberg just reported that residential rents have fallen 27% in San Francisco during the pandemic. This is a welcome development as for young workers and families as our major cities should not solely be the province of the wealthy. As an added benefit, cities will likely become greener and less congested and therefore less polluted in the future.
Accordingly, the good news is that brighter days are likely ahead for cities as we return to safety. The American Recovery Act will allow New York and other cities to restore vital services and retain public sector jobs as the economy recovers. Vaccinations are rolling out at a record pace. Rents and particularly those for sublets continue to fall, which will incentivize managers to more favorably consider new leases if current ones are expiring. But the future favors those with bold solutions to the changed urban landscape as things are not going back to where they were before the pandemic. Those who ignore the fundamental changes that have rocked the office world do so at their peril.
So that’s the way I see it. More importantly, what do our friends and clients think? Please let us know.